EC 110 Study Guide - Final Guide: Monopolistic Competition, Natural Monopoly, Production Function
Document Summary
Oligopoly: firms whose success depends upon the actions of the other firms in the market. Nash equilibrium: when your best option matches up with the best option for the other player and you both benefit. Is an outcome where each firm chooses the best strategy, given the strategy chosen by the other firm in a market. *** a dominant strategy has to be a nash equilibrium. *** a nash equilibrium does not have to be a dominant strategy. When firms in an oligopoly individually choose production to maximize profit, they produce a quantity of output greater than the level produced by monopoly and less than the level produced by perfect competition. The oligopoly price is less than the monopoly price but greater than the competitive price (which equals marginal cost). The output effect: because price is above marginal cost, selling one more gallon of water at the going price will raise profit.