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Oligopoly A few large sellers dominate An individual firm can change output, sales, and prices in the industry Examples of Oligopolistic Markets Interdependent Behavior If one firm does something, the other follows Collusion – formal agreement to set prices Form of price-fixing Collusion is illegal Oligopoly Pricing Behavior See price wars Raising prices is often too risky Some follow independent pricing Oligopolist sets its own price based on demand, cost of inputs, and other factors Price leadership One firm initiates most changes Others follow Profit Maximization MR=MC Final price tends to be higher than monopolistic competition Monopoly Very few pure monopolies Dislike of monopolies Easy to find substitutes New technology introduces new product Natural Monopoly Geographic Monopoly Costs are minimized by having a monopoly Due to its location Technological Monopoly Due to new technology that others cannot copy Get patents and copyrights Monopoly Government Monopoly Government Total Revenue Marginal Revenue Marginal Cost only a demand curve Monopolists tend to produce less than hundreds of pure competitors Marginal Product Display Monopolist Supply MR=MC Market Demand Maximization Price Profit owned services $10 600 600 0 $6,000 $9 720 720 120 $6,480 $4.00 $5.00 $8 850 850 130 $6,800 $2.46 $2.90 $7 990 990 140 $6,930 $0.93 $0.93 $6 1140 1140 150 $6,840 -$0.60 -$0.91 $5 1300 1300 160 $6,500 -$2.13 -$2.61 $4 1470 1470 170 $5,880 -$3.65 $3 1650 1650 180 $4,950 -$5.17 $2 1840 1840 190 $3,680 -$6.68 $1 2040 2040 200 $2,040 -$8.20