ECO 1 Lecture Notes - Lecture 14: Marginal Cost, Allocative Efficiency, Game Theory
Document Summary
Example: the lack of diamond mines creates an oligopoly. Economy of scale-firms must produce a large amount to be profitable, there is no room for small producers. In monopolistic competition, there is no productive efficiency because there is excess capacity and there is no allocative efficiency because price is greater than marginal cost. This is in the short and long term. Because there is a gap in the marginal revenue, graphs are not used in analysis of oligopolies. Has many rules (more rules is better) Ways of solving the game theory problems. Dominant strategy-choose what can give the best outcome regardless of what others will pick. To do this, ignore the other firm and chose the price that will give the higher profit. Maximax-try to earn the most profit possible even if at a high risk. In this case, the dominant strategy is the low price for naive. Maximin-chose the best of the worst options.
