Lecture Notes: Unit 4 - Imperfect Competition

Introduction

• Presenter: Jacob Reed from ReviewEcon.com
• Focus: Imperfect Competition in Microeconomics
• Types: Monopoly, Oligopoly, Monopolistic Competition

Types of Imperfect Markets

1. Monopoly

• Single business dominates an industry
• High barriers to entry
• Produces unique goods without close substitutes
• Price seekers
• Allocative inefficiency with deadweight loss

2. Oligopoly

• Few businesses dominate the market (<10)
• High barriers to entry
• Goods may be homogenous or different
• Strategic behavior impacts price
• Game theory explains interdependent strategy

3. Monopolistic Competition

• Many sellers with differentiated products
• Low barriers to entry
• Some influence on price due to differentiation
• Graphs similar to monopoly
• Excess capacity and not allocatively/productively efficient

Key Concepts

Imperfect Competition Characteristics

• Firms lower prices to sell more output
• Marginal Revenue (MR) is below Demand
• Profit maximization: MR = Marginal Cost (MC)
• Price is above marginal cost

Monopoly Details

• Price maximization strategy
• Graphing: MR below Demand, MC intersecting MR for quantity
• Economic profit, break-even, and loss scenarios
• Economies of scale
• Not productively efficient
• Comparison with perfect competition

Monopolistic Competition

• Short-run profits lead to market entry
• Long-run equilibrium results in break-even
• Exit during economic losses

Oligopoly Strategy

• Game theory and payoff matrix
• Strategies: Collusion, Dominant Strategy, Nash Equilibrium

Graphs

• Monopoly, Monopolistic Competition, Oligopoly
• Important curves: Demand, MR, MC, Average Total Cost (ATC)
• Socially Optimal (Price = MC), Productively Efficient (min ATC)

Special Topics

Natural Monopoly

• Captures economies of scale
• Example: Public utilities

Price Discrimination

• Perfect price discrimination captures consumer surplus
• Allocatively efficient quantity without deadweight loss

Exam Preparation

• Focus on graph drawing skills
• Understand strategic behavior in oligopolies
• Practice identifying and calculating profit, loss, and equilibrium scenarios

Conclusion

• ReviewEcon.com resources for further study
• Recommendation to utilize total review booklet and games.