Final presentation of Economic analysis for managers

Presented to :

Sir Dr. Khurram Mughal

Economics analysis for managers

Group Members

Name ID

Saad yaqub 13646

Farhan Hussain 15570Ali Shaharyar 15366

Zameer Ahmad 15582Mehmood

Akram 15303M Shoaib 15206

Outline

OligopolyMonopolistic competition

Perfect competition

Monopoly

Monopolistic competition

Oligopoly

Monopolistic competition

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes.

CharacteristicsNumber and size distribution of sellers

Number and size distribution of buyers

Product differentiation

Conditions of entry and exit

many small sellers

many small buyers

slightly different products

Easy entry and exit

S

O

MC

AC

MRAR=D

P

Q Output

AC

Profit maximizing in short run

S

O

MC

AC

MR

AR=D

P

Q Output

Profit maximizing in Long Run

S

O

MC

AC

MR

AR=D

P

Q Output

Evaluation of monopolistic completion

Because of inefficiency in production per

unit cost is slightly higher

then price.

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (Oligopolists)

Oligopoly

Characteristics

Ability to set price

price setters rather than price takers

Number and size distribution of sellers

many small buyers

Product differentiation

Entry and exit

product may be homogeneous or differentiated

barriers to entry

Varieties of Oligopoly

The product can be homogeneous or differentiated

across producers The more homogeneous the products, the greater the interdependence among the firms

Products can be differentiated

physical qualitiessales locationsservices image of the product

DShare of market demand curve

d

Perceived demand curve

Quantity per period

P1

Q1

P2

Q2 Q21

Pri

ce p

er

un

it

Oligopoly

Models of oligopoly

The kinked demand model

Price leadership

Cournot-Nash model

Bertrand model

The kinked demand model

• One firm increase priceit will reduce its customers because other firms will may not increase their prices

• One firm decrease the priceno increase in its customers because other firms will also decrease their prices

Price leadership

To avoid active competition between firms in oligopoly some firms use price fluctuation.There are two types of price leadership

Dominant firm price leadership In some markets there is a single firm that controls a

dominant share of the market and a group of smaller firms. The dominant firm sets prices which are simply taken by the smaller firms in determining their profit maximizing levels of production.

Barometric price leadership In barometric firm price leadership, the most reliable

firm emerges as the best barometer of market conditions, or the firm could be the one with the lowest costs of production, leading other firms to follow suit.

Cournot-Nash model

• The Cournot-Nash model is the simplest oligopoly model. The model assumes that there are two “equally positioned firms”; the firms compete on the basis of quantity rather than price and each firm makes an “output decision assuming that the other firm’s behavior is fixed.

• The Bertrand model is essentially the Cournot-Nash model except the strategic variable is price rather than quantity.

• Neither firm has any reason to change strategy. If the firm raises prices it will lose all its customers. If the firm lowers price it will be losing money on every unit sold

Bertrand model

cartels and collusion

What is collusion? Unofficial hidden agreement between two or more persons/firms.E.g. Sugar industry

What is a cartel?A cartel is a formal agreement among competing firms.e.g. OPEC (Organization of the Petroleum Exporting Countries)

Collusion and Cheaters?When one firm in collusion agreement cheats to get more profit.