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Microeconomics Monopoly and Oligopoly Tutoring !
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Economics - Microeconomics - Monopoly and Oligopoly

Monopoly
  The word monopoly originally meant the right of exclusive sale. It has come to be used to describe any situation in which some firm or small group of firms has the exclusive control of a product in a given market. The difficulty with this definition comes in defining what one means by "given market." There are many firms in the soft-drink market, but only a few firms in the cola market. The relevant feature of a monopolist from the viewpoint of economic analysis is that a monopolist has market power in the sense that the amount of output that it is able to sell responds continuously as a function of the price it charges. This is to be contrasted to the case of a competitive firm whose sales drop to zero if it charges a price higher than the prevailing market price. A competitive firm is a price-taker; a monopoly is a price-maker.

Oligopoly

Oligopoly is the study of market interactions with a small number of firms. The modern study of this subject is grounded almost entirely in the theory of games. This is, of course, a very natural development. Many of the earlier ad hoc specifications of strategic market interactions have been substantially clarified by using the concepts of game theory. In this chapter we will investigate oligopoly theory primarily, though not exclusively, from this perspective.
  • Cournot equilibrium: Consider two firms which produce a homogeneous product with output levels Yl and Y2, and thus an aggregate output of Y = Yl +Y2. The market price associated with this output (the inverse demand function) is taken to be p(Y) = P (YI +Y2). Firm i has a cost function given by Ci(Yi) for i = 1,2. Firm 1's maximization problem is clearly, firm l's profits depend on the amount of output chosen by firm 2, and in order to make an informed decision firm 1 must forecast firm 2's output decision.
 
 

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