EC201 quiz 7

Long run equilibrium for monopolistically competitive firm ATC = Demand = MC

...

More differentiation leads to greater differences in prices

...

Cartel

A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition.

Dominant Strategy

A situation in which a particular strategy yields the highest payoff regardless of the other player's strategy.

Collusion

A situation in which decision makers coordinate their actions to achieve a desired outcome.

Payoff Matrix

A table showing the potential outcomes arising from the choices made by decision makers

Differentiated Product

Allows firms to have some monopoly power Some control over price due to differentiation Drives demand

Nash Equilibrium

An outcome in which unless the players can collude, neither player has an incentive to change his or her strategy.

Standardized or Differentiated products for oligopoly?

Both

Standardized or Differentiated products for monopolistic competitive firms?

Differentiated products

Oligopoly characteristics

Few large producers Standardized or differentiated products Entry barriers Price makers

Example of differentiation

Ice creams such as halo top, msu dairy store, gelato.

Monopolistic Competition Short Run Eqilibrium is at

MR = MC

Oligopoly Short Run and Long Run Eqilibrium is at

MR = MC

Where does mutual interdependence exist

Oligopoly

Characteristics of Monopolistic Competition

Relatively large number of sellers Differentiated product Some control over price Relatively easy entry and exit

Game Theory

The study of the strategic behavior of decision makers

Oligopoly example

Verizon, AT&T, Sprint, T Mobile

A four firm concentration ratio between what is a oligopoly

between 40% and 100% is considered an oligopoly

Mutual Interdependence

situation in which the strategy followed by one producer will likely affect the profits and behavior of another producer.