Market Structure Wrap-Up

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Presentation transcript:

Market Structure Wrap-Up Chapter 15, 16, &17

Upcoming Test Unit Test Chapters 15,16 & 17 Block Day- Free Response (90 pts) Block Day – Multiple Choice (100 pts) Study Guide due Block Day

4 Market Structures Competition Monopolistic Competition Oligopoly Maximize Profit When: MR = MC MR = MC MR = MC MR = MC Equilibrium Price vs. MC P = MC P > MC P > MC P > MC Perfect Competition Monopolistic Competition Oligopoly Monopoly Long Run Economic Profit Yes No No Yes MC Demand & Marginal Revenue Curve D = MR End Result: No DWL Lowest Px Highest Qty Largest DWL Highest Px Lowest Qty

Efficiency Review Allocative Efficiency when P = MC 3 market structures fail as P > MC (monopoly, oligopoly, monopolistic competition) Only Competitive firms are Allocatively Efficient Production Efficiency when P = min. of ATC 3 market structures fail as P > min of ATC (efficient scale production) Competitive Firms achieve it only in long run 3 Market Structures P > MC P > min of ATC Competitive Markets P = MC (always) P = min of ATC (long run) (Efficient Scale Production)

Intro: Game Theory Wrap Up Dominant Strategy- best strategy for one player regardless of what the other player chooses Enforceable Equilibrium- is a stable “market” equilibrium. No incentive to move/cheat! Nash Equilibrium – a combination of strategies that each choose “best” choice in response to the other’s choice. Every dominant strategy is a Nash Equilibrium Not every Nash equilibrium is a dominant strategy!

Elasticity Review ● D MR Unit Elastic Elastic range Inelastic Range ----------------- Firms will: Operate only in Elastic Portion of Demand Elasticity = 1 when MR = 0 => TR at maximum