Chapter 17

Chapter 17 covered oligopolies and how they worked. It was a pretty simple chapter, especially because it built off of the previous chapters, especially chapter 16. An oligopoly is a market with a few firms, where their actions and interactions affect each other, they are between a competitive and monopoly market, and the more firms there are, the more it acts like a competitive market, with price closer to marginal cost and quantity sold closer to the social benefit; self-interest prevents it from reaching a monopolistic profit. In a perfect world, the oligopoly will reach a monopolistic profit, where the firms maximize their profit, though it would not reach a socially beneficial quantity sold. Instead, the firms will reach, Nash equilibrium, where the economic actors interacting with one another each choose their best strategy given the strategies the others have chosen, due to the tension between cooperation and self-interest. There is also the prisoners’ dilemma, in which cooperation would benefit both parties, but self-interest and dominant strategy usually makes them choose a strategy in which both ultimately are worse off. In some instances, the “prisoners” don’t turn each other in and both receive the most efficient price, but this usually happens in players who do play more than once, learning that cooperation works best. In real life, due to regulation (the Sherman Act), even if firms were interested in cooperation and working it out so all parties could reach the maximized profit, it is difficult because they aren’t even allowed to discuss prices and quantity agreements. 

Chapter 16

Chapter 16 discussed monopolistic competition, and given that it builds off of our previous knowledge, it wasn’t an awful chapter. Monopolistic competitive markets have aspects for both a monopoly and perfectly competitive market, where there are multiple firms, with different categories. This can fall under books and movies, which there are many publishers and works, but each is different from each other. A monopolistic competitive market still allows free entry into a market, as well as exit, and wants to maximize profit. At profit maximization, marginal revenue is equal to marginal cost. It is similar to a monopoly in that is a price maker, the price must be above marginal cost, doesn’t necessarily produce welfare-maximizing output. It is similar to a perfectly competitive market in that it has many firms, has free entry in the long run, but cannot earn economic profits in the long run. The graphs seems fairly easily to understand, especially after the last chapter, nothing too new or surprising. I think at this point it is just remembering and understanding which traits the market shares with competitive and monopoly. The rest of the chapter discussed advertisements and brand names, their benefits and critiques, and how that affects the market. 

Chapter 15

This chapter focused on monopolies and how they operate. It compared them to a competitive firm or market, commenting on their differences and similarities, but also on how decide on production, prices, and how they are regulated. The chapter kept referring to how a certain rule or application was the same as in competitive markets, which helped since I have a stronger understanding of it. The idea of deadweight losses and the graph is still an iffy idea to me, but I think the class lecture should help. Monopolies arise from three factors: a firm owns a key resource for production, the government gives a single from the rights to produce a good, or the costs of one firm to produce a good is less than if other firms joined the market. Since monopolies have so much market power, they decide on the quantity to produce and the price to charge, but that doesn’t mean they can charge whatever they want. Their demand is downwards sloping, so the more the charge, the less of a demand, unlike price takers who jus decided the quantity to produce in a horizontal demand curve. Monopolies are regulated through pricing, antitrust laws, make them government owned, or are left alone, since the market can reach a socially profitable equilibrium on its own at times.

It’s a fairly easy chapter, but the graphs can get a bit confusing, I should be able to clear that up, and be reassured by going over the material is class. 

Chapter 14

Chapter 14 covered the firms in competitive markets and their costs and firms. A big theme was what causes a firm to shut down or exit a market. Meaning that it compared the costs firms face in perfect competitive markets to their profits, both in the short and long run. The chapter introduces many new equations and additions to old familiar graphs. Like, most chapters, this stuff seems pretty common sense-y, but also like one mix up could make you mess up a whole concept. Overall, a decently easy chapter, for now. Some ideas the chapter covers is a switch from marginal cost to marginal revenue and how that helps analyze how well a firm is doing. For instance, if marginal revenue is less than marginal cost, the firm is losing profit and should decrease their production. And marginal revenue and cost are equal when the firm is producing at maximum profit. We learn that firms choose to shut down, which is temporary and they still lose fixed cost, when their market price is less than the average variable cost, and a market will exit a market the price is less than the average total cost, and enter when price is more than average total cost. In some instances, a firm will be more profitable when it shuts down instead of exiting a market, because it of the sunk costs (fixed costs that still need to be paid during unproductivity), which can be irrelevant (this idea is still iffy to me).