The General Equilibrium, Oligopoly, Monopoly, Assignments of Microeconomics

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General

Equilibrium

ANNISYA ZAHRO FIRDAUSA

Partial equilibrium analysis assumes that activity in one market is independent of other markets.

General equilibrium analysis determines the prices and quantity in all markets simultaneously and takes the feedback effect into account.

A feedback effect is a price or quantity adjustment in one market caused by price and quantity adjustments in related markets.

General Equilibrium Analysis

Two Interdependent Markets (Movie Tickets

and Videocassette Rentals) Moving to General Equilibrium

OLIGOPOLY

ANNISYA ZAHRO FIRDAUSA

●Collusion - when firms act together to reduce output and keep prices high. They do this by: holding down industry output, charging a higher price, and dividing the profit among themselves.

●Cartel - a group of firms that have a formal agreement to collude to produce the monopoly output and sell at the monopoly price.

Collusion

and

Cartels

●Game theory - a branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs based on what other players decide to do.

●Prisoner’s dilemma - a scenario in which the gains from cooperation are larger than the rewards from pursuing self-interest.

The Prisoner’s Dilemma

CHOICES

How to Enforce Cooperation

The way out of a prisoner’s dilemma is to find a way to penalize those who do not cooperate.

Oligopolists may choose to act in a way that generates pressure on each

firm to stick to its agreed quantity of output.

Kinked demand curve - a perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases

A Kinked Demand Curve

Monopoly

Annisya Zahro Firdausa

A market structure characterized by a single seller , selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute.

Definition

Monopoly in the Long

Run: Barriers to Entry

barriers to entry Factors that prevent new firms from entering and competing in imperfectly competitive industries.

Barriers to Entry

Economies of Scale natural monopoly An industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient.

In some cases, governments impose entry restrictions on firms as a way of controlling activity.

Patent A barrier to entry that grants exclusive use of the patented product or process to the inventor. Ownership of a Scarce Factor of Production If production requires a particular input and one firm owns the entire supply of that input, that firm will control the industry. Network Effects network externalities The value of a product to a consumer increases with the number of that product being sold or used in the market.

Government Rules

Price Discrimination

price discrimination Charging different prices to different buyers

perfect price discrimination Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.

Examples of Price Discrimination

Airlines, movie theaters, hotels, and many other industries routinely charge a lower price for children and the elderly.

In each case, the objective of the firm is to segment the market into different identifiable groups, with each group having a different elasticity of demand.

The optimal strategy for a firm that can sell in more than one market is to charge higher prices in markets with low demand elasticities.