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Chapter 16

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ECON 200

Microeconomics Chapter 16  Oligopoly: a market structure in which only a few sellers offer similar or identical products.  Type of imperfect competition  Less competition  Measure by concentration ratio: % of total output in the market supplied by the 4 largest firms  High concentration: cereal, aircraft, laundry equipment, and cigarettes.  Monopolistic competition: many firms sell products that are similar but not identical  Each firm has a monopoly on the product it makes but many other firms make similar products that compete for the same customers.  Many sellers  Product differentiation: products are slightly different.  Free entry and exit  Different from perf competition because the products are slightly different.  Monopolistic competition  Short run  Like monopoly; has downward shaped demand curve and maximizes profit when MR = MC, then use demand curve to show the price to sell at.  If demand curve is belowATC = loss and vice versa.  Long run equilibrium  When a firm is making a profit, new firms have incentive to join market, which increases the number of products for consumers to choose from and decreases demand, shifting the demand curve to the left, and decreasing profit. • Continues until firms are making zero economic profit ♦ When the demand curve and theATC are tangent.  Price > MC • MR = MC, and demand curve makes MR < Price  Price =ATC • Free entry and exit drive economic profit to zero.  Monopolistic Competition vs Perfect Competition  Excess capacity: monopolistic competitions produce on the downward sloping
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