The Four Types of Market Structure

The Four Types of Market Structure Economists who study industrial organization divide markets into four types—monopoly, oligopoly, monopolistic competition, and perfect competition. 5 © 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed… Continue reading The Four Types of Market Structure

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Monopolistic versus Perfect Competition

Monopolistic versus Perfect Competition Panel (a) shows the long-run equilibrium in a monopolistically competitive market, and panel (b) shows the long-run equilibrium in a perfectly competitive market. Two differences are notable. (1) The perfectly competitive firm produces at the efficient scale, where average total cost is minimized. By contrast, the monopolistically competitive firm produces at… Continue reading Monopolistic versus Perfect Competition

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Markets with Only a Few Sellers

Markets with Only a Few Sellers •  A small group of sellers, oligopolists – Tension between cooperation and self- interest – Best off cooperating, acting like a monopolist •  Produce a small quantity of output •  Charge P >MC – Each firm cares only about its own profit •  Powerful incentives not to cooperate 3 © 2018 Cengage… Continue reading Markets with Only a Few Sellers

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Equilibrium for an Oligopoly discussion

Equilibrium for an Oligopoly •  Oligopolists – Better off cooperating and reaching the monopoly outcome – They pursue their own self-interest •  Do not end up reaching the monopoly outcome and maximizing their joint profit •  Each is tempted to raise production and capture a larger share of the market •  Total production rises and price falls… Continue reading Equilibrium for an Oligopoly discussion

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The Economics of Cooperation

The Economics of Cooperation •  The prisoners’ dilemma – Particular “game” between two captured prisoners – Illustrates why cooperation is difficult to maintain even when it is mutually beneficial •  Dominant strategy – Strategy that is best for a player in a game •  Regardless of the strategies chosen by the other players 16 © 2018 Cengage Learning®.… Continue reading The Economics of Cooperation

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