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Introductory Microeconomics - Part 2, Summary of key concepts.docx

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University of Pennsylvania
MGMT 211
Sean Doherty

Introductory Microeconomics Part 2: Summary Notes. Perfect Competition: MR (=Price) = MC Monopoly: MR (<>price) = MC 1. TR  MR; TC  MC 2. Solve Oligopoly Situation 1. Bertrand (firms don’t realize their decisions affect each other – act like perfect competition) a. Each firm sets P at MC 2. Collusion (maximize total profit between the two) a. Profit function for whole market (in terms of q1 & q1) b. Find partial derivatives of q1 and q2 c. Solve by substituting one into the other 3. Cornout (both firms decide at once – no collusion) a. Profit function for both firms individually b. Find partial derivatives of q1 and q2 c. Solve by substituting one into the other 4. Stackleberg (leader, follower) a. Find leader’s profit function b. Find follower’s reaction function (after derivative); substitute into leader’s profit function c. Take derivative and solve for q1 and then q2 OR d. Find Leader’s Supply function by subtracting Follower’s Supply from Market Supply (all before derivatives) e. Set Leader’s MR = MC and solve for leader’s quantity  use this to find price f. Substitute P into Follower’s demand function Game Theory  Prisoner’s Dilemma = Nash equilibrium is to defect; but both players would be better off if they cooperated  Dominant Strategy = best strategy regardless of what the other is doing  Nash Equilibrium = optimal situation given what the other is doing  One period game – use astrexies to find Nash equilibrium  Fixed period game – firms will never co
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