ECON 10010 Chapter Notes - Chapter 16: Market Power, Natural Monopoly, Profit Maximization
Document Summary
Market domination (small # of firms) is measured using the concentration ratio: percentage of total output in the market supplied by the four largest firms. Examples: light bulbs, cereal, aircraft manufacturing: monopolistic competition: market structure in which many firms sell products that are similar but not identical. Each firm has a monopoly over its product. There is competition in the product"s category. Many sellers: many firms compete for the same customers. Product differentiation: products are slightly different; each firm has a downward sloping demand curve. Free entry and exit: number of firms adjusts until economic profit =0. Demand and atc curves are tangent to each other at a q where mr. = mc: monopolistic versus perfect competition, perfect competition: Firm produces at the efficient scale: atc is minimized. Free entry drives firms to produce at the minimum atc (efficient scale: monopolistic competition: Firm produces at less than efficient scale. Firms have excess capacity: can increase quantity produced and lower.
