ECON 1B03 Lecture Notes - Demand Curve, Strategic Dominance, Petro-Canada

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Few sellers, usually big firms (think coke and pepsi) One firm"s decisions affect another firm"s profits. If they were co-operative, they would agree on a monopoly outcome, split production at 30 barrels each, and each make a maximum profit of . An agreement among firms in a market about quantities to produce or prices to charge. If cheating in this cartel occurs, then they will come to an equilibrium that is suboptimal. They won"t be selling at q to maximize profits. A situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the others have chosen. Monopoly price > oligopoly price > perfect competition price. When the number of oligopoly sellers increases, it approaches a competitive market, price approaches marginal cost, and quantity approaches socially efficient level. Price effect: raising production causes q increase, which causes p decrease and reduces profit. If output effect > price effect: the firm increases production.