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Basic Market Concepts

Basic Market Concepts. Shutdown Rule P > AC, making a  AVC < P < AC, SR loss, maybe OK P < AVC, shutdown. Profit Maximizing Quantity where MC = MR Market Power ability to set the market price HH Index (Sum of squares of Market Share). Factors that determine Market Structure.

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Basic Market Concepts

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  1. Basic Market Concepts • Shutdown Rule • P > AC, making a  • AVC < P < AC, SR loss, maybe OK • P < AVC, shutdown. • Profit Maximizing Quantity • where MC = MR • Market Power • ability to set the market price • HH Index (Sum of squares of Market Share)

  2. Factors that determine Market Structure • Number of Buyers and Sellers • Barriers to Entry / Exit • Regulation (patent etc.) • Sole Ownership • Scale Economies (Natural Monopolies) • Are the Products Homogenous / Differentiated

  3. 4 Market Structures

  4. Characteristics of the 4 Market Structures

  5. Oligopoly: Strategic Behavior • Barriers to entry that can lead to oligopoly. • The prisoner’s dilemma model. • Game theory analyzes behavior of oligopolists. • Equilibrium may differ in games • with repeated plays • played only once. • Explicit and implicit collusion. • Why and when cheating is likely in a cartel. • Forces operating to restrict and reduce the extent of oligopoly in the economy.

  6. A Summary of Market Structures

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