Market Structure WrapUp Chapter 15 16 17 Upcoming

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: Equilibrium Price vs. MC MR = MC Perfect Competition Long Run Economic Profit Demand & Marginal Revenue Curve End Result: No MR = MC P > MC Monopolistic Competition No MC D = MR No DWL Lowest Px Highest Qty MC Oligopoly Monopoly Yes MC MC 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 (always) P = min of ATC (long run) (Efficient Scale Production) P > MC P > min of ATC

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 range Inelastic Range --------- ● D MR Firms will: 1) Operate only in Elastic Portion of Demand 2) Elasticity = 1 when MR = 0 => TR at maximum