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one difference between mono comp and pure comp is that:
there is some control over price in mon comp
demand curve for a monopolistically comp firm has a
neg slop and marginal revenue curve has neg slope
in mono comp, a firm has a limited degree of 'price-making' ability meaning
the firm will produce at min ATC
not true for mono comp industry
the portion of the MC curve above AVC curve is the short-run supply curve for firm
long-run equilibrium, a profit-max firm in mono comp will produce the quantity of output where
AC=P, MR=MC< P
mono comp is characterized by excess capacity b/c
firms produce at an output level less than the least-cost output
mon compe there is an underallocation of resources at the profit max level output meaning
price is greater than MC
compared to pure comp, mono compe
provides greater product differentiation at the cost of some excess capacity
compared to a purely comp firm in long-run equilibrium, the mono competitor has a
higher price and lower output
the stronger the product differentiation...
the less elastic the demand curve, and production will take place further to the left of min ATC
oligop market is consistent with
all firms making econ profit, a small number of firms in industry, and the existence of barriers to entry
in a duopoly, if one firm increases its prices, then the other firm can
keep its price constant and thus increase its market share
kinked demand model of noncollusive oligop assumes that
rivals will ignore price increases and match price cuts
a cartel is formed among the major firms in an industry that maximizes join profits of the firms, each firm
has the incentive to cheat by cutting its price
aspects of product differentiation
product attributes, service, location, brand name and packaging, and some control over price
relatively large number of sellers, differentiated product, easy entry and exit, nonprice competition
benefits of product variety
creates tradeoff b/n consumer choice and productive efficiency; stronger pdiff, the greater the excess capacity and greater productive inefficiency; greater pdiff, the more likely firms will satisfy great diversiyt of consumer tastes
few large produces of a homo or differentiated product; have considerable control over price (mutual interdependence)
short comings of concentration radio
1) localized markets (pertain to nation as whole)
2) interindustry competition (comp b/n 2 products associated w/ different industries)
3) world trade (doesn't account for import compet of foreign suppliers)
obstacles to collusion
1) demand and cost differences (when oligops face different prices and costs it is difficult for them to agree on a price)
2) number of firms (the large the # of firms the more difficult it is to create a cartel)
4) recession (enemy to collusion since slumping market costs increase ATC)
5) potential entry
6) legal obstacles: antitrust law
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