Download Unit Wrap Up

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
Maximize Profit
When:
MR = MC
Equilibrium
Price vs. MC
P = MC
Perfect
Competition
Long Run
Economic
Profit
MR = MC
MR = MC
P > MC
P > MC
P > MC
Monopolistic
Competition
No
No
Monopoly
Yes
Yes
Price
MC
Demand
& Marginal
Revenue
Curve
Oligopoly
Price
Price
MC
MC
Price
MC
D = MR
Demand
MR
0
End Result:
MR = MC
Quantity of Output
No DWL
Lowest Px
Highest Qty
0
D
Quantity of Output
MR
0
D
Quantity of Output
MR
0
D
Quantity of Output
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
Competitive Markets
P > MC
P > min of ATC
Costs and
Revenue
Price
P = MC (always)
P = min of ATC
MC
ATC
(long run)
(Efficient Scale Production)
B
Monopoly
price
Average total cost
A
P1
Demand
Marginal
cost
Marginal revenue
0
Quantity
0
Q
QMAX
Q
Quantity
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
Unit Elastic
Elastic range
Inelastic Range
-----------------
●
D
MR
Firms will:
1) Operate only in Elastic Portion of Demand
2) Elasticity = 1 when MR = 0 => TR at maximum