econ wk08-4 ppt oligopoly competition(2) - copy
TRANSCRIPT
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 1/21
PART 5: MARKET DECISIONS
WK8-4 OLIGOPOLY PRODUCT COMPETITION
AGRICULTURAL TECHNICAL INSTITUTEAED 200: AGRICULTURAL ECONOMICS
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 2/21
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
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 3/21
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
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 4/21
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 5/21
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
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 6/21
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
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 7/21
Markets
Selling Products
Pure / Perfect
Monopolistic
OLIGOPOLY
Monopoly
Buying Inputs
Pure / Perfect
Monopsonistic
Oligopsony
Monopsony
Wk 8-4: Oligopoly
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 8/21
After The Discussion, The Student Should Be
Able To
Learning Objectives
Wk 8-4: Oligopoly
1. Discuss Market Decisions Under
Oligopoly
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 9/21
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
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 10/21
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 11/21
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
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 12/21
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
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 13/21
D. If Firms Move Prices Together
Q
P
Demand
D
Marg Revd
1Below Pt1, Other Firms Match
Price Cuts, Curve Dd Prevails
Obj 1 Discuss Mkt Decisions Under Oligopoly
Ave Rev
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 14/21
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 15/21
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
Obj 1 Discuss Mkt Decisions Under Oligopoly
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 16/21
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
OBJ 1 Discuss Mkt Decisions Under Oligopoly
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 17/21
III. GRAPHS
Q
P
PRICE
D = ARMR
dMarg Cost
QE
PS
C
PROFIT
OBJ 1 Discuss Mkt Decisions Under Oligopoly
Ave Total Cost 1
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 18/21
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
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 19/21
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
8/8/2019 Econ Wk08-4 Ppt Oligopoly Competition(2) - Copy
http://slidepdf.com/reader/full/econ-wk08-4-ppt-oligopoly-competition2-copy 20/21
NEXT TOPIC
MONOPOLY