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ARE BUSINESSES EFFICIENT?
Oligopolies are industries with just
a few firms because there are high barriers to entry. So do
they earn long-run profits (YES) and are they efficient
(NO)?
Oligopolies are more complex than the
other three models. Instead of one model to explain how
oligopolies determine price and quantity we will have
four:
1. kinked demand
model
2. collusion
3. price leadership
4. game theory
General Outline for Each Product
Market Model:
1. Know the model's
characteristics and examples (See the "8/9a QUIZ - 4
PRODUCT MARKETS" quiz on our Blackboard site.)
2. Be able to explain the shape of the demand curve
3. Draw the short run equilibrium graphs for (a) profit
maximizing firms, (b) loss minimizing firms, and (c)
firms that will shut down
4. Draw the long run equilibrium graph and find the
profit maximizing quantity (WHAT WE GET), allocatively
efficient quantity (WHAT WE WANT), and the productively
efficient quantity. See the last 13 pages of the Unit 3
Yellow Pages ("3 Rules and 4 Models").
5. Understand any other issues associated with the
model
Never forget this: To maximize
profits business will produce the quantity where MR=MC.
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