ECN 104 Lecture Notes - Lecture 11: Molson Coors Brewing Company, Breakfast Cereal, Tacit Collusion

• School: Ryerson University
• Department: Economics
• Course: ECN 104
• Professor: Frank Trimnell

Document Summary

7. (appendix) utilize additional game-theory terminology and applications. Monopolistic competition: price and output determination: the firm"s demand curve is highly, but not perfectly, elastic. It is more elastic than the monopoly"s demand curve because the seller has many rivals producing close substitutes. It is less elastic than in perfect competition, because the seller"s product is differentiated from its rivals, so the firm has some control over price. In the short-run situation, the firm will maximize profits or minimize losses by producing where marginal cost and marginal revenue are equal, as was true in perfect competition and monopoly. The profit-maximizing situation is illustrated in figure 11-1a, and the loss-minimizing situation is illustrated in figure 11-1b. As firms enter the industry, this decreases the demand curve facing an individual firm as buyers shift some demand to new firms; the demand curve will shift until the firm just breaks even.