ECON 1B03 Chapter Notes - Chapter 11-12: Marginal Product, Normal-Form Game, Danian
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ECON 1B03 Full Course Notes
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Module 4, unit 11. 1: oligopoly and profit maximizing behaviour. Few sellers, big firms: homogeneous or nearly identical products. Interdependent firms: one firm"s decisions affect another firm"s profits: duopoly: an oligopoly with only 2 member, simplest type of oligopoly. Numerical example: robin and wills are the only two producers of fresh vegetable oil in thorold. How cheating works: robin knows that wills will produce 25 barrels. There are now 70 barrels for sale at : now robin and wills are both selling 35 barrels at each, each making a profit of (less than before) The more each person cheats, the more profits will drop. If they both stop at 35 barrels they end up with a suboptimal outcome and settle in at an equilibrium. Nash equilibrium: a situation in which economic actors interacting with one another each chose their best strategy given the strategies that all the others have chosen, always results in a suboptimal outcome.