ECON101 Chapter Notes - Chapter 15: Contestable Market, The Dilemma, Competitive Equilibrium

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: wokiakumase

Document Summary

Natural or legal barriers prevent the entry of new firms. Natural or legal barriers to entry can create oligopoly. Economies of scale and demand form a natural barrier to entry and create a natural oligopoly. Duopoly an oligopoly with two firms o. The quantity at minimum atc is half of quantity demanded, price is determined by minimum atc o o. There is no room for three firms in the market. If there was only one firm, it would make an economic profit, and a second firm would enter to take some business and economic profit. A legal oligopoly occurs when a legal barrier protects the small number of firms in a market e. g. a license. Even though the combination of demand and economies of scale leaves room for more o o firms. Each firm has a large share of the market. Each firm"s actions influence the profits of other firms.