ECON 1B03 Chapter Notes - Chapter 1: Nash Equilibrium, List Of Post-Nominal Letters, Oligopoly

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

Document Summary

Example: big oil companies, soft drink market. interdependent firms: one firms decisions affect another firms profits. Duopoly: is an oligopoly with only two members. Collusion: an agreement among firms in a market about quantities to produce or prices to change. Cartel: a group of firms acting in unison. Nash equilibrium: a situation in which economic actors interacting with one another each choose their best strategy given strategies that all the others have chosen. Since firms produce identical goods, as number of sellers in an oligopoly increases, an oligopolistic market looks more and more like a competitive market. The price approaches marginal cost, and the quantity produced approaches the socially efficient, competitive equilibrium level. Oligopolistic firms will therefore often try to keep out new entrants so their profits remain positive. ( by having high costs to enter) Increasing output has two effects on a firms profits: Output effect: if p>mc, selling more output raises profits.