Unit 4-Imperfect Competition

Perfect Competition

no barriers to entry, no differentiation, price takers, and many buyers and sellers. Ex: agriculture

Monopolistic Competition

low barriers to entry but product differentiation (many buyers and sellers) Ex: Cereal

Oligopoly

High barriers to entry, low number of firms that produce different or the same products (many buyers) Ex: Aircraft

Monopoly

Strong barriers to entry, only 1 firm in market, and price setter (many buyers) Ex: Utility providers, telecom providers 

Imperfect Competition Graph (MR and Demand Curve)

The MR Curve is decreasing and less than the demand curve

Imperfect Competition Graph (Quantity and Price)

In a imperfect competition, buyers choose the quantity where MR=MC but choose the price where it equals the demand curve (with that Quantity)

Imperfect Competition Quantity

In imperfect competitions, they produce less than socially optimal because they want to choose prices higher than the marginal cost

Imperfect Competition Price

In imperfect competitions, sellers set prices where it is greater that the marginal cost

Dead weight Loss

P>MC

Economic Profit

the space between the market price and ATC (at the market Quantity)

Additional Fixed Costs

When there is additional fixed costs (like a tax), the economic profit decrease

In imperfect competition, the quantity ______________

is less than what is socially optimal

Price Discrimination

selling the same good to different consumers at different prices, often based on their willingness to pay

Perfect Price Discrimination

each buyer is charged their entire willingness to pay

Allocative Efficiency

D=MC

Under perfect price discrimination, _____________

the firm can achieve allocative efficiency 

In a monopolisitic competiton, the demand curve _________

decreases because there are more close substitutes

As the demand decreases in a monopolistic competition, the economic profit comes to ___

zero

Which of the following is a similarity between monopoly and monopolistic competition?

Both have excess capacity in the long run.

Nash Equilibrium

concept in game theory where no player can benefit by unilaterally changing their strategy while the other players keep their strategies unchanged.

What happens when a monopolist turns to perfect price discrimination?

producer surplus increases, consumer surplus and deadweight loss equals zero

What is a natural monopoly?

where a single firm can supply the entire market at a lower long-run average cost (LRAC) than if multiple competing firms were to exist. characterized by extremely high fixed costs and large economies of scale (ATC must decrease)

A firm with market power engages in price discrimination in order to 

increase its profits 

Both a smaller number of __________ and more ________ products make it more difficult for consumers to be responsive to price changes, therefore, the firm will face a less elastic demand curve.

rivals and differentiated