Oligopoly Flashcards
1
Q
market structure (oligopoly)
A
- few sellers
- identical or similar goods
- each firm can effect prices by exiting
- must be aware of other firms (interdependent)
2
Q
profit formula
A
profit=(price-ATC)•Q
3
Q
MR formula
A
MR=price-(delta p)(firms orig. Q)
delta p—> how much firm must cut prices to sell one more unit
find delta p from the slope of the demand curve
4
Q
oligopoly in the long run
A
- firms will base their Q on the Q of the other firm at the given price of the good
- firms split profit that monopoly would have made at the same point
- generally produce higher Q than monopoly point
5
Q
incentive to collude
A
willingness of firms to maximize industry profit to monopoly point
-it’s a little illegal
6
Q
incentive to “cheat”
A
if a firm produces more than it promised, it can increase its own profits
7
Q
if firms act independently
A
collusion is a little illegal and never works in the long run
8
Q
Cournot Assumption
A
- assumes that other firms will stay the same and see that to find profit max Q
- assumes rivals Q is fixed, and produces Q based on this fixed # to maximize their own profits
- if this happens, industry will reach Cournot Equilibrium
- Cournot Equilibrium=Nash Equilibrium in duopoly (game theory)
9
Q
The Cournot Nash Equilibrium
A
-both firms produce where MC=MR
10
Q
what happens when # firms inc.
A
-Nah equilibrium moves down demand curve closer to socially efficient point
