Class Notes (922,925)
CA (543,002)
UTSG (45,883)
ECO (1,646)
ECO101H1 (575)
Jack Carr (83)
Lecture 18

Lecture 18-Oligopoly and Monopolistic Competition

5 Pages
176 Views

Department
Economics
Course Code
ECO101H1
Professor
Jack Carr

This preview shows pages 1-2. Sign up to view the full 5 pages of the document.
Thursday, November 19th, 2009.
Oligopoly and Monopolistic Competition
Market Structure
Perfect Monopolistic Oligopoly Monopoly
Competition Competition
No. of firms Many Many Few One
in industry
Product Identical Differentiated Identical or No close
Differentiated substitutes
Example Wheat Family Auto TTC
Farmer Restaurants Manufacturers
______________________________________________________________________________
Oligopoly: Key Features
x No Single Theory
x Economic profits can range from nil (same as in perfect competition) to monopoly level
x Mutual interdependence among firms is central to analysis
Two Sellers: Will They Earn Monopoly Profits?
Assume (for simplicity): MC = 0 = ATC (Example: town wells)
Market Demand Curve Total Revenue (= Profit)
P Q
80 20 1600
70 25 1750
60 30 1800
50 35 1750
40 40 1600
30 45 1350
www.notesolution.com
Monopolist Maximizes Profits
Observations
1) To maximize profit, produces output where MR = MC
2) Since MC = 0, MR = 0 at profit-maximizing output Ù monopolist maximizes total
revenue
(numerical example)
1. How do oligopolists collude
2. By fixing prices
(at monopoly level, if joint profits are maximized)
3. Price fixing is illegal
(so agreements cannot be enforced by the courts)
4. Result: agreements (cartels) may break down
Duopolist: Possible Outcomes
1. Collude (Form Cartel)
(1) Replicate monopoly output
Q = 30
P = 60
P
DD
30
MR
60
MC = 0
Q
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
th Thursday, November 19 , 2009. Oligopoly and Monopolistic Competition Market Structure Perfect Monopolistic Oligopoly Monopoly Competition Competition No. of firms Many Many Few One in industry Product Identical Differentiated Identical or No close Differentiated substitutes Example Wheat Family Auto TTC Farmer Restaurants Manufacturers ______________________________________________________________________________ Oligopoly: Key Features N No Single Theory N Economic profits can range from nil (same as in perfect competition) to monopoly level N Mutual interdependence among firms is central to analysis Two Sellers: Will They Earn Monopoly Profits? Assume (for simplicity): MC = 0 = ATC (Example: town wells) Market Demand Curve Total Revenue (= Profit) P Q 80 20 1600 70 25 1750 60 30 1800 50 35 1750 40 40 1600 30 45 1350 www.notesolution.com Monopolist Maximizes Profits P 60 MC = 0 30 DD MR Q Observations 1) To maximize profit, produces output where MR = MC 2) Since MC = 0, MR = 0 at profit-maximizing output Ù monopolist maximizes total revenue (numerical example) 1. How do oligopolists collude 2. By fixing prices (at monopoly level, if joint profits are maximized) 3. Price fixing is illegal (so agreements cannot be enforced by the courts) 4. Result: agreements (cartels) may break down Duopolist: Possible Outcomes 1. Collude (Form Cartel) (1) Replicate monopoly output Q = 30 P = 60 www.notesolution.com Profit = 1800 (2) Must allocate market share 50 : 50 (for example) => q = 15 (each firm) Profit = 900 (each firm) 2. Incentive to Cheat: Cartel May Break Down: Detail 1) Firm: TO cheat or not to cheat (a) If does not cheat, q = 15 and profit = 900 (b) If cheats and increases q to 20 (say) Market output increases from 30 to 25 (Q = 35) Market price declines form 60 to 50 (since Q = 35) Profit increasesto 1,000 (20*50 = 1,000) Result: Firms cheat and cartel breaks down 2) Equilibrium (a) Each firm: q = 20 => Q = 40 (20 + 20) Ö P = 40 Ö Profit = 800 (each) Note: lower profit than if did not cheat c
More Less
Unlock Document


Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit