ECON-200 Lecture Notes - Lecture 22: Best Response, Nash Equilibrium, Marginal Product
18 Sep 2020
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Document Summary
Oligopoly small number of competitors - each has more than negligible effect on the market. Possible product differentiation, barrier to entry (patent, technology, economies of scale) Decisions based on what competitors are doing: must decide how to react to competitors" actions figure out how own actions will affect competitors" reactions. 1 firm makes production decisions before all others. Q = q1 + q2 follower"s decision depends on what the leader does: q2 = f(q1) >> reaction function follower will seek to maximize profits. One variable input firm decisions - based of benefits on incremental or average basis total output - can actually decrease after too many workers are employed too many workers >> workers get in each others" way, entrepeneurship decreases. Average product of labor (apl) = q/l: output per unit of labor, slope of line from origin to point on total product curve.
