ECON 203 1nd Edition Lecture 19Outline of Last Lecture I. Market Structure (cont.)a. Monopolistic competitionb. oligopolyOutline of Current LectureI. Market Structure(cont.)a. Oligopolyb. MonopolyII. Effect of Market PowerCurrent LectureI. Market Structure (cont.)a. Oligopolyi. Few firms-some very large in size and a few small, niche suppliersii. May or may not see differentiated products iii. Barriers to entry- hard to enter because consumers develop habits and patterns that make them loyal to certain producersiv. Producers follow decision rule of: MR=MCb. Monopolyi. 1 seller in the marketii. Unique good or service not offered by anyone elseiii. Barriers to entry-patent, exclusive contractiv. Ex. US postal service, US government, Dominion Powerv. Decision rule: MR=MC (this is the decision rule for all firms in all markets)II. Effect of Market PowerSay we have a good that costs $1 for the first unit and each additional unit costs $2 more than the previous one. Given Qd= 10-P:Under competition, P=5 and Q=5. TR=P*Q=25TC=1+2+3+4+5=15Profit, Π= TR-TC=25-15=10With market power, P=7 and Q=3TR= P*Q=21TC= 1+2+3= 6Π=21-6=15These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Market power allows businesses to sell less units, but at a higher price which gives more profit for less work. Ex.) cartel- a group of firms or nations that work together to decrease consumer surplus and increase producer surplus. (OPEC oil cartel decides how much oil to produce and at which cost to sell it. The less oil produced, sold at a higher cost, gives more profits for the companies in the cartel even though they did less work)--as a cartel size increases, the likelihood of its success
View Full Document
Unlocking...