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Perfect comp. Monopolistic comp. 0% Low concentration 50% | Few dominate the industry Many or not does not matter, domination Concentration ratio- CRx X is the number of large firms Example- Cr4 is 90 on beer companies Meaning 4 companies make 90 % of booze Oligopoly monopoly Medium concentration 80% High concentration Some make almsot the same goods, some are very differnent Most hard barriers to entry like high scale of production and branding Interdependance Small number of firms controling the industry Collude- act togehter as a monoply Also compete vigourously for market share Prics change far less, even when production costs change firms leave their prices unchanged Firms | |||||||||
| Collusive and non collusive | Firms act togehter as a monoply and share profits Formal- firms offically agree on a price A cartel Illigal in most countries as is against the interest of the people Fines and punishments Opec, world oil prices Tacit collususion, when firms change their prices simply by looking at other firms prices, no comuniation need to take place. Monopoly graph Try to keep prices stable in order to keep the situation going Non collusive firms, compete and are aware of eachothers actions Game theory is the optimum strategy that a firm could undertake in tge light of other firms decisions for example:
firm a firm b kinked demand curve The firm only knows one point on its demand curve if the firm raises their price alot of demand would be lost if the firm lowered their price then the other firm would lower theirs too show price rigifity in a non collusive olygopoly firms are afraid to raise prices firms are afraid to lower markets the shape of the mr curve means that if marginal cost were to rise then it is possible that mc equals mr and so not chang ethier prices or outputs
non price comp. brand names, packaging, special features and ads etc. huge expeditures on ads misuse of resources but also greater choice unilever amd procter and gamble own many things, many industries |
Tuesday, February 28, 2012
oligopoly
Sunday, February 26, 2012
monopolistic competition
My version has pictures
monopolistic competition
| The assumptions of monopolistic competition | Fairly large number of firms The firms are small relative to the industry All produce slightly different products No barriers to entry | ||||||||
| Possible short run profit and loss |
  mc
mr
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| The long equilibrium | All firms will go back to a long run equilibrium and all make normal profits If firms are making short run abnormal profit other firms will get attracted to join and the curve will shift back to normal. if there is short run losses companies will leave and the firms remaining will go to equilibrium product differentiation in order to attract more customers maximizing profits when MC=MR all firms making normal profits
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| Productive and allocative effeciency | Productive effiveincy- Mc=ac Allocative= mc=ar | ||||||||
| Monopolistic competition vs. perfect competition | not productive or allocative effecient this is due to the consumers desire for different products they pay higher for the choices | ||||||||
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Mastering Monopolistic Competition
1. Explain the assumptions of monopolistic competition.
Assumption Explanation
| Number of firms | There are a large number |
| Size | The firms are small in comparison to the industry |
| Products | All products are slightly different |
| Barriers to entry | Very little |
- Define and give examples of product differentiation.
Differentiation exists when a good or service is perceived to be different from other goods/services in some way.
color of the packaging.
- Explain and illustrate the demand curve for firms in monopolistic competition.
- Explain and illustrate the short run profit/loss situation for firms in monopolistic competition.
- Explain and illustrate the long-run equilibrium in monopolistic competition.
All firms will go back to a long run equilibrium and all make normal profits
If firms are making short run abnormal profit other firms will get attracted to join and the curve will shift back to normal. if there is short run losses companies will leave and the firms remaining will go to equilibrium
product differentiation in order to attract more customers
- Explain the movement from short run to long run in monopolistic competition.
• Because of ease of exit and entry (no barriers to entry) SR losses or profits will turn into LR normal profits as firms enter and exit the industry freely.
• If firms are making SR abnormal profits, then other firms will be attracted to the industry.
• As they enter, they will take some business away from existing firms, whose demand curves will shift left.
• If firms are making SR losses, some firms will exit the industry. The firms that remain will find their demand curve begin to shift right as they pick up trade from exiting firms.
- Explain and illustrate productive and allocative efficiency in the short and long run in monopolistic competition.
- Compare and contrast perfect and monopolistic competition.
not productive or allocative effecient
this is due to the consumers desire for different products
they pay higher for the choices
Wednesday, February 8, 2012
Monopoly
Monopoly
| Assumptions of the model | There is only one firm producing the products Barriers to entry exist so that new firms cant enter the market and they maintain the industry As a concequence of the barriers to entry the monopolist may be able to make abnormal profit in the long run |
| Sources of monopoly power/barriers to entry | The firm may be able to keep its monopoly in several ways 1. Economies of scale- If a firm is a monopoly they will be feelong economies of scale, the firms that are trying to enter will be too small and not enough expertise, therdore they will be forced to make losses as they simply cant compete. 2. Natural monopoly 3. Legal barriers Patents allow legal monopolies to encourage creativity and inventions Governments create a nationalized industry 4. Brand loyalty A company may gain huge brand loyalty, consumers think of the product as a brand Kleenex 5. Anti competitive behavior Firms may try to adopt restrictive practices, -price war, the firm iss able to lower their prices so much kicking other firms out of the industry |
| The demand curve and the profit maximizing level of out put | The firms demand curve is the industries demand curve, |
| Possible profit situations in monopoly | The monopoly is able to make abnormal profits in the long run. However they can also make losses and if they closed down the industry would also close |
| Revenue maximization | The firm may want to maximize revenue rather than profit. |
| Efficiency in monopoly | There is neither productive efficienct nor allocative |
| Advantages and disadvantages | |
| The disadvantages | |
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