Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my-business-economics-and-financial.html

Monopolistic Competition & Oligopoly

Monopolistic or Imperfect Competition – Characteristics

large number of small sellers

Single seller do not have a significant effect on other sellers

Many buyers but they attached to certain sellers

Resources can easily be transferred in to and out of the industry

Free entry and exit

Goal of a firm is to maximize profits

Slightly differentiated, but not a perfect substitute for that of other firms.

Individual firm has some control over price

Profit maximization in short run

Assumes that advertising and product attributes have already been determined.

Determining the profit-maximizing output and price are the remaining decisions for managers.

Assumes that all firms have similar demand and cost curves.

Monopolistic competitions in the short run are similar to those of monopoly.

Managers able to differentiate their product can maintain a relatively inelastic demand curve.

Example

Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my-business-economics-and-financial.html

Profit maximization in Long run - Normal profit

Reasons

more and more firms come in to the industry and start to produce substitute

Larger number of firms demand for production factors prices of such factors begins to increase

Oligopoly

Small number of sellers unspecified number of buyers

Each firm must consider the effect of its actions on other firms

Product may be either homogeneous or differentiated

Entry difficult

If the product is homogeneous, the market is said to be a pure oligopoly. ex- cement and steel

market

If the product is not homogeneous, the market is said to be a differentiated oligopoly. Ex

automobile and television industry

Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my-business-economics-and-financial.html

Models

Kinked Demand Curve

Assumption – firms only follow price cuts but not the price hikes

Cartel

Only produce a pre determined number of products & sell them to a predetermine price

Price Leadership

Oligopoly Explained

Summary

Characteristics

Pure Competition Monopolistic Competition

Oligopoly

Monopoly

Number of competitors

Many Few to many Few No direct

competitors

Ease of entry into industry by new

firms Easy

Somewhat Difficult

Difficult Regulated by government

Similarity of goods or services

offered by competing firms

Similar Different Can be either

similar or different

No directly competing goods

or service

Control over prices by

individual firms None Some Some Considerable

Demand curves facing individual

firms Totally elastic

Can be either elastic or inelastic

Kinked; inelastic below kink; more

elastic above

Can be either elastic or inelastic

Examples Bread Snack bar Mobile providers CTC