ECO100Y1 Lecture Notes - Monopolistic Competition, Imperfect Competition, Demand Curve

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20 Feb 2014
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Auto manufacturers (north america: few firms( gm,chrysler,ford, face downward-sloping demand curves. Should gm raise price of tits compact cars: mutual interdependence. Oligopolists(few sellers, aware of interdependence: if compete with one another, industry profits may fall to competitive level ( 0 economic profits, if form a successful cartel (may earn economic profits), industry profits may= monopoly profits. Insights: most oligopolists compete with one another. 2. cartels are illegal cartel--an association to gain interest of cartel members: cartel, if formed, may break down for incentive reasons (get: the conflict between cooperation and self-interest)** Oligopolists may try to collude (form a a cartel) rather than to compete with one another: forming a cartel (price-fixing) is illegal, economic analysis draws attention to incentives high probability of breaking down. Numerical example; purpose: what output would a profit-maximizing monopolist produce in special case where mc=0=atc what would monopolist do? (mc=0, atc=0, fixed cost=0) Assume (for simplicity): mc=0=atc (example: town wells fill up consumers" own bottle with water)

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