Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy

8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy

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PART 5: MARKET DECISIONS

WK8-4 OLIGOPOLY PRODUCT COMPETITION

AGRICULTURAL TECHNICAL INSTITUTEAED 200: AGRICULTURAL ECONOMICS



C. The Firm's Marginal Revenue Line Slopes

DownDown And Is BelowBelow The Ave Revenue Line.

Review

A. The Demand Curve (( QuantityQuantity

Sold At Each Price )Price ) Facing The Monopolistic

Firm Slopes DownDown

B. Demand Curve Is Also Called

The AverageAverage Revenue Line.

Wk 8-4: Monopolistic Competition



15

30 Q

P

Price:

Demand:

Ave Rev:Marginal Rev

15

Marginal Cost

Ave Tot Cost

8

Opt Pt

C

Profit

Market Decisions Under Monopolistic Competition

1LearningObjective





G. In The Long Run, The Average Average Total

Cost Will Be EqualEqual To The MarginalMarginal

CostCost Curve At The Optimum Quantity,

Resulting In No PurePure Profits.

WK 8-4: MONOPOLISTIC COMPETITION

H. Monopolistic Competition Is Less Efficient

Because Less Is Produced And AHigher Price IsCharged Than Would Be The Case Under Perfect

Competition



Part 5: Market Decisions

Wk 7-5: Price Determination

Wk 8-1: Market Disequilibrium

Wk 8-2: Market Structure

Wk 8-3: Pure Competition

Wk 8-4: Monopolistic & OLIGOPOLY

Wk 8-5: Monopoly Competition

Wk 9-1: Anti-competitive Legislation

Wk 9-2: Monopsony

Wk 9-3: Oligopsony



Markets

Selling Products

Pure / Perfect

Monopolistic

OLIGOPOLY

Monopoly

Buying Inputs

Pure / Perfect

Monopsonistic

Oligopsony

Monopsony

Wk 8-4: Oligopoly



After The Discussion, The Student Should Be

Able To

Learning Objectives

Wk 8-4: Oligopoly

1. Discuss Market Decisions Under

Oligopoly



I. Characteristics

A. Number Of Sellers;

B. Ease Of Entry/Exit:

C. Ability To Set Price:

D. Product Differentiation:

E. Number Of Substitutes:

F. Long Run Profits:

G. Economic Efficiency:

H. Examples:

FewDifficult

Moderate

Substantial

Few

Yes: ± No:

Some,

Cars, Tractors, Steel,

Meat Packers

Price Leaders

Barrier To Entry:patents,econ To Scale

Obj 1 Discuss Mkt Decisions Under Oligopoly





If The Oligopolists Tries To Lower His Price, The

Competitors Will Match The Cuts To Avoid Losing

Market Share. The Lower Price & No Change In

Sales Means That The Firm Will Lose Revenue.

C. ON THE OTHER HAND,

OBJ 1 Discuss Mkt Decisions Under Oligopoly




3. No market coordination

D. Relationships between oligopolies

1. Formalized market coordination: cartels

- agreements between firms to divide

market share or set price. Illegal in the

United States

2. Informal market coordination: price

leadership

a. Price leadership by the dominant firm

b. Historical price leadership



D. If Firms Move Prices Together

Q

P

Demand

D

Marg Revd

1Below Pt1, Other Firms Match

Price Cuts, Curve Dd Prevails


Ave Rev





III. Calculation

SellPrice

Quant:Ave Rev

TotRev

MargRev

MargCost

2.70 300 1.35

2.65 350 1.40

2.60 400 1.45

2.55 450 1.50

2.50 500 1250 2.04 1.55

2.45 513 1256 .54 1.60

2.40 525 1260 .25 1.65

2.35 538 1264 .31 1.70

2.30 550 1265 .08 1.75

810

928

1040

1140

2.44

2.36

2.24

2.16




IV. GRAPHS

Q

P

D = AR

D

MRD

d

d

1

Above Pt 1, Rivals Will Not Match

Price Inc & Demand Curve BecomeMORE ELASTIC: Dd PREVAILS

Below Pt1, Other Firms Match

Price Cuts, Curve Dd Prevails

MRd




III. GRAPHS

Q

P

PRICE

D = ARMR

dMarg Cost

QE

PS

C

PROFIT


Ave Total Cost 1



Thus The Demand Curve (D-d) Above A CertainPrice Is More Elastic. T His Causes A Vertical

Discontinuity "Kink" In The Marginal Revenue

Line

V. SUMMARY

The Lower Portion Of Demand Curve (D-d)

Represent The Quantity Sold At Each Price

When The Firms Move Their Prices Together.

Typically Firms Match Price Cuts But Not

Necessarily Price Increases .

WK 8-4: OLIGOPOLY



Production Is Where Marginal Revenue

Equals Marginal Cost.

The Firm's Optimum Point Of

More Efficient Technology Which Will Shift The

Marginal Cost Curve But Will Not Result In AGreater Quantity Produced As

It Would In Pure Competition.

WK 8-4: OLIGOPOLY



NEXT TOPIC

MONOPOLY



Q

P

d

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Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy