ECN 104 Lecture Notes - Demand Curve, Market Power, Marginal Cost
Document Summary
In this chapter, look for the answers to these questions: (cid:131) what market structures lie between perfect competition and monopoly, and what are their characteristics? (cid:131) how do monopolistically competitive firms choose. Two extremes (cid:131) perfect competition: many firms, identical products, free entry and free exit (cid:131) monopoly: one firm, huge barriers to entry. In between these extremes: imperfect competition (cid:131) oligopoly: only a few sellers offer similar or identical products. (cid:131) monopolistic competition: many firms sell similar but not identical products, free entry free exit in lr. Industry concentration (cid:131) four- firm concentration ratio: the % of total output produced & sold by an industry"s largest firms. Total output in the industry industry is considered monopolistically competitive if four-firm concentration ratio <40% (cid:131) (cid:131) industry is considered oligopolistic if four-firm concentration ratio > 40% (cid:131) herfindahl index. The index is the sum of the squared percentage market shares of all firms in the industry: