ch.11 - ch.12 Flashcards
3 characteristics of oligopoly
- few sellers, big firms
- Homogeneous or identical products
- Interdependent firms (firm’s decision affects another firm)
Duopoly
oligopoly with only 2 members
collusion
an agreement among firms in a market about quantities to produce or prices to charge
Cartel
A group of firms acting in unison
Suboptimal outcome
Because there is temptation to cheat, each acts in his own best interest and ends up that amount
Nash equilibrium
economic actors interacting with one another each choose their best strategy. Always results in a suboptimal outcome.
_________ products are sold on oligopoly and perfect competition
Homogenous
T or False: firm’s decisions affect other firms in Oligopoly and perfect competition
False: only in Oligopoly
If duopoly agreed on best price like monopoly, where would it be?
When price and quantity has a total profit which is maximized ( so TR also)
Game theory:
the study of how people behave in strategic situations.
prisoners’ dilemma
particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial.
T or F: A dominant strategy is the best strategy for a player to follow regardless of the strategies chosen by the other players.
T
as the number of sellers in an oligopoly grows larger, an oligopolistic market looks more like ______
a competitive market.
How is oligopolistic market become similar to the competition market?
The price approaches MC , and the quantity produced approaches the competitive equilibrium level
Increasing output has two effects
Output Effect and Price Effect
Output Effect
If P > MC, selling more output raises profits.
Price Effect
Raising production increases market quantity, which reduces market price and reduces profit on all units sold
If output effect > price effect, what happens?
the firm increases production.
If price effect > output effect, what happens?
the firm reduces production.
Canada’s Competition Act makes it illegal to ______
collude.
Canada’s Competition Act makes it illegal to ______
collude.
Cooperation among oligopolists is undesirable because
it leads to production that is too low and prices that are too high.
tacit collusion
No formal agreements (paper trails).
Just an “understanding” among firms
Resale Price Maintenance
requiring a retailer to sell a good at a certain price determined by the wholesaler.
Why is Resale Price Maintenance controversial
- prevents retailers from competing in price.
- a consistent higher price may signal high quality, brand name products
what is Predatory Pricing?
charging too low prices, hoping to drive out competitors.
Can lead to price wars which benefit consumers.
Tying
in order to purchase a monopoly good, you must purchase another “competitive” good at the same time. Give you a deal on the monopoly good and overcharge you on the competitive good.
Are labour markets price-takers or price-makers?
Price takers. The firm has no control over wage
What is workers contribution to TR in a labour market?
Her MP (what she adds to total output) times the addition to total revenue of her output, MR.
MRP = MR*MPLWhen will a firm hire a worker?
As long as the contribution of a worker outweighs her cost, the firm will hire that worker.
where
To maximize profit, the competitive, profit-maximizing firm hires workers up to the point where
W = MRP = P*MPL
Effectively, a firm hires labour where MRL = MCL to maximize profit
What is MRP
The MR of the last worker hired is their addition to TR, their MRP
The MRPL curve is the labour demand curve for a competitive, profit-maximizing firm.
What is W
The MC of the last worker hired is their addition to TC, their wage
A change in W: leads to ________ demand curve
a movement along the labour demand curve.
Since D = MRP = P* MPL
if P goes up what happens do the demand curve?
Demand curve goes up so it shifts to the right
Since D = MRP = P* MPL
if P goes down what happens?
Demand curve goes down, so shifts to the left
If something changes MP, what happens?
the curve will shift
ex: increase the MP of labour will shift demand right.
labour supply curve reflects
how workers’ decisions about the labour-leisure tradeoff respond to changes in opportunity cost.
The higher the wage, the ________ leisure becomes and the more ________ an individual is willing to supply.
more expensive
work hours/less leisure
A change in W: is a ________labour supply curve
movement along the
Shift factors of supply curve in labour market
- Changes in attitudes
- Changes in alternative opportunities
- Immigration
A firm will hire capital at the point where
r = MR*MPK = MRPK
where r = rental price of capital
K = amount of capital
P = selling price of the good
Present Value
is the amount of money needed today to produce a given amount of money at a specified future date, accounting for the prevailing interest rate.
The annual payment is called a _____ payment, denoted C.
coupon
