Hallelujah! This is the last PowerPoint presentation.

Oligopoly and Monopolistic competitions.

Oligopoly Characteristics

• Few Sellers / Many Buyers

• Differentiated products

• Price Leadership

• High barriers to entry

• Non-price competition

The Automobile Industry is agood example of an Oligopoly

• Few Sellers / Many Buyers---There are many models of automobiles, but they are produced by approximately 12 different manufacturers.

• Differentiated Products---A car is a car. It is designed to get you from point A to point B. Yet, automobiles are differentiated in how good you look or how fast you can move between the two points.

• Price Leadership---When a leader in the industry lowers prices, competitors tend to follow. For example: Chrysler lowered the price of their Jeep Cherokee by offering a low interest rate. The other manufaturers of utility vehicles followed by lowering their prices as well (either by offering cash rebates, free extended warranties, or low interest rates). Price Leadership also creates cooperation among rival firms. For example: Ford and General Motors cooperated with Chrysler to create and test the first minivans. This helps reduce the total costs for each firm and yet receive the same results in the end.

The Automobile Industry is agood example of an Oligopoly

• High barriers to entry---The automobile industry is a very cost intensive industry. This in itself is a barrier to entry. Other barriers may include a distribution network or limited suppliers of vital compoents. Government regulations are also a major barrier for the auto industry.

The Automobile Industry is agood example of an Oligopoly

The Automobile Industry is agood example of an Oligopoly

• Non-price competition---Automobile dealers compete against each other, not only with price, but with warranties, options, reputation, brand names, and advertisements. Who is to say that a Ford truck is any better than a Chevy truck, yet loyal Ford buyers believe this is very true and would not purchase a Chevy truck.

You now have the basics to graphs. There is only one little differnce for the

graph of an oligopoly.

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The Demand Curve is Kinked.

Marginal Revenue is still half the demand, therefore, MR is also kinked.

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The demand curve is kinked because of price leadership

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ATCMCJust remember that Oli is kinky.

All the rules for the Point of Production and determining the price are the same as they

were for a monopoly.

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Where is the Point of Production?

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Point of Production is where MC = MR.

What price will be charged?

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Carry the point of production up to the demand curve and Hang a Left.

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Is this firm maximizing profits, minimizing losses, or breaking even?

Remember the rules!

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This firm is maximizing profits.

Average total cost is below demand , at the point of production.

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What price will this oligopoly choose to charge?

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$25 is correct.

Remember to find the point of production, carry that up to the demand curve and hang a left.

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$25 is correct.

Remember to find the point of production, carry that up to the demand curve and hang a left.

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Is this firm maximizing profits, minimizing losses, or breaking even?

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Breaking even is correct. At the point of production (MC=MR), Average total cost (ATC) is equal to Demand (D).

Jumping over to

Monopolistic competition

Monopolistic Competition

is the last form of competitive environments.

Characteristics of Monopolistic Competition

• Many Sellers / Many Buyers

• Differentiated Products

• Easy entry / Easy exit

• Non-Price Competition

• Price Setters

Many products that we purchase on a daily basis fall into the category of monopolistic

competition.

Blue Jeans is a good example of a Monopolistic market.

• Many Sellers / Many Buyers---There are many manufacturers of blue jeans

• Differentiated Products---Jeans are Jeans, yet consumers preceive jeans as being very different.

• Easy entry / Easy exit---If a manufacturer wishes to produce blue jeans or get out of the blue jean market it is realitively easy.

• Non-price competition---Jeans compete through advertising, and brand names and loyalty.

• Price setter---The manufacturers of blue jeans are able to set their prices given the respective demand schedule.

Blue Jeans is a good example of a Monopolistic market.

Graphs for monopolistic competition look like and work like the graphs for a monopoly.

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What price and quantity will this oligopoly choose to charge?

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The price will be approximately $24 with athe quantity of approximately 24.

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The price will be approximately $24 with athe quantity of approximately 24.

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Is the firm maximizing profits, minimizing losses, or breaking even?

Minimizing Losses

By Joe, I think you’ve got it!

Open the assignment for unit 4.

After completing the assignment for unit 4 you need to read the

remaining chapters and complete the final assignment for unit 5.

This concludes the Principles of Microeconomics course ECN 202.