ECO100Y5 Lecture Notes - Lecture 11: Market Power, Nash Equilibrium, Oligopoly

• School: UTM
• Department: Economics
• Course: ECO100Y5
• Professor: Zachary Mahone

Document Summary

Perfect competition: homogeneous product, small producers, perfect information of consumers, free entry and exit. In order to sell more, they have to charge less: if q=5, p=4, if q=6, p=3. When is mr increasing in q? when d is elastic. If the demand curve is linear then the slope of the mr curve is twice that of the demand curve (twice as deep) If output is increased by 1: increase revenue by p, increased (variable) costs by mc (which changes with q) Under mono: increases revenue through selling and additional unit, decreased revenue by the fall in price (on all units, and still increases (variable) costs by mc. For the sane reason, profits maximized when: mr=mc. A monopoly yields a market inefficiency (deadweight loss) For monopoly profits to persist, the entry of new firms must be prevented. An entry barrier is any barrier to the entry of new firms into an industry.