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EC-0005 (25)
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Oligopolies.docx

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Department
Economics
Course
EC-0005
Professor
George Norman
Semester
Spring

Description
04/10/2014 04/10/2014 SECTION 8 *slide 8 – barriers to entry Oligopoly Concentration ratio: fraction of each industry’s sales accounted for by its 4 largest firms Four­firm concentration ratio > 40% indicates oligopoly  Economies of scale: when a firm’s long­run average costs fall as output increases Industry is competitive if min point of long­run average cost curve (LRAC) occurs at level of output that is a  small fraction of total industry sales  Industry is oligopoly if min point occurs at level of output that is a large fraction of industry sales  Game theory: study of decisions of firms in industries where profits of each firm depend on interactions with  other firms Duopoly game (price competition between 2 firms) Payoff matrix: table that shows payoffs that each firm earns from every combination of strategies Collusion: agreement among firms to charge same price or agree market shares, or otherwise not to  compete Dominant strategy: strategy that is best for a firm, no matter what other firm
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