Microeconomics Unit 3: Imperfect Competition

Key Concepts and Questions:

* For imperfectly competitive firms MR¹P. Why?

* How do a monopolist's price, output, and profit levels compare to those of a firm operating in a perfectly competitive market?

* Imperfectly competitive firms are not as allocative efficient as perfectly competitive firms.

* There are two types of economic efficiency (allocative and productive).

* In some cases, the government needs to encourage competition in markets.

* In other cases, the government should allow a regulated monopoly to exist.

* How do the characteristics of monopolistic competition and oligopoly differ?

Terms and Topics:

Some items from previous units are repeated to emphasize their importance.

· Private sector

· Public sector

· Business Organizations

-- Proprietorship

-- Partnership

-- Corporation

· Durable goods

· Non-durable goods

· Productive efficiency

-- Underallocation of resources

-- Overallocation of resources

· Short run

· Long run

· Long Run Equilibriums

· Entry/Exit in a market

· Elasticity of demand

-- In monopolistic competition

-- In perfect competition

-- In monopoly

· Government Regulation of Monopoly

-- Fair return

-- Socially optimum output

-- Consumer surplus

· Characteristics of perfect competition

· Characteristics of monopolistic competition

· Characteristics of Monopoly

-- Natural monopoly

-- Pure monopoly

· Characteristics of Oligopoly

· Barriers to Entry/Exit

· Marginal cost

-- Start up costs

· Fixed costs

-- Patents

· Variable costs

-- Licensing agreements

· Total costs

· Average variable cost

· Price Discrimination

· Monopoly firm vs. perfectly competitive industry

-- Allocative efficiency

-- Productive efficiency

· Monopoly vs. perfect competition in long run equilibrium

· Monopolies (pros and cons)

· Monopolistic competition (pros and cons)

· Demand and MR for monopolistic competition and monopoly

· R+D (research and development)

· Non-price competition

· Product differentiation

· Brand loyalty

· Concentration ratio

· Collusion

· OPEC

· Interdependence of oligopoly

· Price leader/follower

· Price stickiness

· Cartel

· Price wars

· Role of advertising

· How to increase profits?

Graphical Analysis:

· Profit maximization

· Reading from a graph

· Break even

· Shut down

· Long run equilibriums

· Minimize losses

· Regulatory options for a monopoly

· Natural monopoly

· Compare a Monopolistically Competitive firm to a Perfect Competitive firm at long run equilibriums.

· Compare a monopoly firm to a perfectly competitive industry and firm at long run equilibriums.