tailieunhanh - Lecture Economics (18th edition): Chapter 11 - McConnell, Brue, Flynn's

Chapter 11 - Monopolistic competition and oligopoly. After reading this chapter, you should be able to: List the characteristics of monopolistic competition, explain why monopolistic competitors earn only a normal profit in the long run, describe the characteristics of oligopoly, discuss how game theory relates to oligopoly,. | Monopolistic Competition and Oligopoly Chapter 11 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Characteristics of monopolistic competition Normal profit in the long run Characteristics of oligopoly Game theory The oligopolist’s kinked demand curve Collusion among oligopolists The effects of advertising 11- Monopolistic Competition Large number of sellers Small market shares No collusion Independent action Differentiated Products Product attributes Service Location Brand names and packaging Some control over price 11- Easy entry and exit Need for advertising Nonprice Competition Which industries? Degree of concentration Four-firm concentration ratio Herfindahl index Monopolistic Competition Monopolistic Competition 11- Firm’s demand curve Highly elastic Short run profit or loss Produce where MR=MC Long run normal profit Entry and exit Inefficient Product variety Monopolistic Competition 11- Short-Run Profits Quantity Price and Costs MR = MC MC MR D1 ATC Economic Profit Q1 A1 P1 0 Monopolistic Competition 11- Short-Run Losses Quantity Price and Costs MR = MC MC MR D2 ATC Loss Q2 A2 P2 0 Monopolistic Competition 11- Long-Run Equilibrium Quantity Price and Costs MR = MC MC MR D3 ATC Q3 P3= A3 0 Monopolistic Competition 11- Quantity Price and Costs MR = MC MC MR D3 ATC Q3 0 P3= A3 P=MC=Min ATC for pure competition (recall) P4 Q4 Price is Lower Excess Capacity at Minimum ATC Monopolistic competition is not efficient Monopolistic Competition 11- Oligopoly A few large producers Homogeneous or differentiated products Control over price Mutual interdependence Strategic behavior Entry barriers Mergers 11- Oligopoly Four-firm concentration ratio Needs to be more than 40% Half of . manufacturing Localized markets Interindustry competition World trade Import Competition Herfindahl index 11- Game Theory RareAir’s Price Strategy Uptown’s Price Strategy A B C D $12 $12 $15 $6 | Monopolistic Competition and Oligopoly Chapter 11 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Characteristics of monopolistic competition Normal profit in the long run Characteristics of oligopoly Game theory The oligopolist’s kinked demand curve Collusion among oligopolists The effects of advertising 11- Monopolistic Competition Large number of sellers Small market shares No collusion Independent action Differentiated Products Product attributes Service Location Brand names and packaging Some control over price 11- Easy entry and exit Need for advertising Nonprice Competition Which industries? Degree of concentration Four-firm concentration ratio Herfindahl index Monopolistic Competition Monopolistic Competition 11- Firm’s demand curve Highly elastic Short run profit or loss Produce where MR=MC Long run normal profit Entry and exit Inefficient Product variety Monopolistic Competition 11- Short-Run .