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In the long run, a firm that does not minimize average cost will not survive.

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In the short run, each firm earns an economic profit, shown by the shaded rectangle.

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In Exhibits 10 and 11 we found a new long-run equilibrium point after a shift of the demand curve.

The industry supply curve slopes more housing construction could bid up what developers must pay for land, carpenters, upward lumber, and other building materials.

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Each firm's marginal and average cost curves rise as input prices get bid up.

The firm doesn't earn economic profit in this long-run equilibrium because the average total cost is equal to the price.

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Economic profit to zero is the result of a combination of a higher production cost and a lower price.

The market price does not fall back to the initial equilibrium level because each firm's average total cost curve has increased.

Each firm's costs are dependent on the scale of its plant and the rate of output.

By bidding up the price of resources, long-run expansion in an increasing-cost industry increases each firm's marginal and average costs.

Competitive firms don't make a lot of money in the long run.

Firms can adjust their resources so they are better able to respond to price changes.

Firms that do not reach inputs must either adjust their cost in the long run or leave the industry to avoid continued losses.

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The answer is dependent on the market demand and supply curves.

The marginal value that consumers attach to each unit of the good, so the mar output most preferred by consumers, is the amount people are willing and able to pay for the final unit they con equals marginal cost sume.

The marginal cost of supplying the last unit sold is equal to the equilibrium price in perfect competition.

In the short run, producers derive a net benefit from mar ket exchange because what they receive for their output exceeds what they would accept to supply in the long run.

Firms could not cover average variable cost so quantity supplied would be zero.

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The blue triangle is the area above the market-clearing price of $10 per unit and below the demand curve.

Shut production exceeds variable down is the most the firm can lose in the short run.

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Both producers and consumers usually derive a surplus or bonus from market exchange when it comes to Chapter 8 Perfect Competition.

There are limited opportunities to carry out controlled experiments in the physical and biological sciences.

Each "experimental economics to the Internet" at http:// buyer was given a card indicating the value of purchasing one unit of a hypothetical market.

The values ranged from $3.25 to $0.75 and formed a downward sloping demand curve.

Each seller was given a card indicating the cost of supplying one you can receive a password unit of that commodity; these costs ranged from $0.75 up to $3.25 forming an upward and play one of their games sloping supply curve.

To provide incentives, participants were told they would get a cash bonus at the University of Virginia, an end of the experiment based on the difference between the price they negotiated in the innovator in using games in the market and their value for buyers or their cost for sellers.

There was a cash incentive for both buyers and sellers to play the game at http://www.people.virginia.

Rules similar to those governing stock markets and commodity exchanges are used.

Whenever a buyer or seller accepted an offer to sell, a transaction occurred.

Economists have conducted thousands of experiments to test the properties of markets.

Under most circumstances, markets are very efficient in moving goods from producers with the lowest costs to consumers with the highest values.

It takes a lot of participants to establish a market price.

A double-continuous auction and posted pricing do not adjust to changing market conditions quickly.

Despite their slow response time, posted prices may be the choice for large, relatively stable markets, because posted prices involve low transaction costs, that is, buyer and seller don't have to haggle over each transaction.

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In the case of some stock and commodity markets, thousands of people in full-time negotiations are required to maintain prices at their equilibrium levels, although the Internet is reducing these transaction costs.

A world of data for experimentalists has been opened up by the rapid development of online auctions.

The number of papers published in the field jumped from less than 20 a year in the 1970s to more than ten times that today.

Let's review the assumptions of a perfectly competitive market and see how each relates to the ideas developed in this chapter.

The assumption ensures that no individual buyer or seller can influence the price.

The demand curve would no longer be horizontal if every firm was a price taker.

Some firms might fail to recognize opportunities for short-run economic profits because they don't know how to use outdated technology.

The markets for agricultural products, metals, and foreign exchange are close to being perfect.

In the next two chapters, you will see how perfect competition can be used to evaluate the efficiency of other market structures.

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In the environment in which fi rms operate, they are not free to enter or leave the market.

The short run, economic profi t or loss is possible are included.

In the long run, number of buyers and sellers in the market, the ease or diffi culty, however, the differences in the product their scale of operation until any economic profi t or loss is.

Competition drives each fi rm in the long run to produce at the number of buyers and sellers, each too small to be seen as the lowest point on the long-run average cost curve.

Firms that fail to produce at and sellers who don't have full information about availability don't survive in the long run.

As the industry expands or contracts at the market price, each fi rm faces a demand curve that is a horizontal line earn just a normal profi t. The long-run industry supply curve has a shape average revenue and marginal revenue received at each rate of costs either constant or increasing, according to the fi rm's demand curve.

Because output is produced using the most effi cient combina, each fi rm can have a different amount.

The market structure of a particu ter is determined by the panel in Exhibit 3.

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A normal good is being produced in a constant-cost, perfectly competitive way.

Discuss any changes in output levels, profits, and the number of firms.

Discuss any changes in output levels, prices, profits, and the number of firms.

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The equilibrium price and quantity are shown in the Dollars demand and supply diagram.

The traditional market structure for Indian agriculture is described in the fourth paragraph.

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Monopolists sell electricity, cable TV, and local phone service in some parts of the United States.

Postage stamps, hot dogs, some patented products, some prescription drugs, and other goods and services are all sold by monopolists.

The sources of monopoly power and how a monopolist maximizes profit are covered in this chapter exam.

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There are three types of entry barriers: legal restrictions, economies of Concerning Patents and control of an essential resource.

Inventions are encouraged to invest time and money to discover and develop new products and processes.

A legal barrier to entry that Governments often confer monopoly status on is the exclusive right to supply a particular good or service.

Federal licenses give certain firms the right to sell a product for 20 years after the broadcast of radio and TV signals.

Suppliers of medical patent application are authorized by state licenses.

A license doesn't grant a monopoly, but it can block entry and give firms the power to charge higher prices.

The process of turning an also grant monopoly rights to sell hot dogs at civic auditoriums, collect garbage, pro invention into a marketable product, and supply other services ranging from electricity to cable is Copyright 2010 Cengage Learning.

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Market demand is not enough to allow more than one firm to achieve economies of scale.

The cost of linking an additional household to the power grid is relatively small once wires are strung throughout a community.

As more and more households are wired into an existing system, the average cost of delivering electricity will decline.

A new entrant can't sell enough to experience the economies of scale achieved by a natural monopolist.

When economies of scale are reflected by a long-run average cost curve, a monopoly can be created.

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From the late 19th century until World War II, the U.S. was the sole maker of aluminum.

The monopoly power began when production patents expired in 1909, but it continued to control the supply of bauxite for the next three decades.

Professional sports leagues try to block the formation of competing leagues by signing the best athletes to long-term contracts and by seeking the exclusive use of sports stadiums and arenas.

The National Zoo in Washington, D.C. rents its pair of pandas from China for $1 million a year.

In 2010 a male offspring of the Washington pair was shipped back to China.

A child walking along the Orange River in South Africa in the 19th century picked up a pebble that turned out to be a 21-carat diamond.

Consolidated Mines undertook efforts to control the world supply of diamonds and to learn a lot about buying increase consumer demand for them when the Great Depression caused a slump in diamond prices.

The company was able to increase consumer demand through a sponsoring firm.

De Beers spends $200 million a year trying to convince people that diamonds are rare, valuable, and perfect reflections of love.

De Beers would invite www.debeerscanada.com to limit the supply of rough diamonds.

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Once control of a key resource is lost, a monopoly loses market power.

De Beers lost control of some rough diamond supplies in the 1990s.

Australia's Argyle mine stopped selling to De Beers in 1996.

Yellowknife, a huge Canadian mine, began operations in 1998 but De Beers was guaranteed only about one-third of its output.

De Beers supplies jewelers with equipment to spot synthetics.

De Beers has stopped trying to control the world dia mond supply.

The company agreed to abide by antitrust laws in the future.

De Beers wants to become the "supplier of choice" by marketing its brand of diamonds at its own jewelry stores.

There were more than three dozen such stores around the world, including in New York and Beverly Hills.

In an effort to differentiate its diamonds, De Beers has started etching its "Forevermark" on some stones.

The company didn't have as much incentive to pursue its anticompetitive practices after losing that power.

Starbucks has built up a unique experience for the customer, including baristas who know customer orders by heart and a comfortable atmosphere that encourages patrons to relax and linger.

A recent memo from the company chairman warned that the pressure to grow could affect Starbucks.

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In rural areas, there may be only one grocery store, movie theater, restaurant or gas station.

Barriers to entry tend to be broken by technological change over time.

The development of wireless transmission of long-distance calls created competitors to AT&T.

Text messaging, email, the Internet, and firms such as FedEx are competing with the U.S.

The Postal Service's monopoly was described in a later case study.

When De Beers lowers the price from $7,000 to $6,750, the total revenue increases.

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Total revenue is at a maximum, neither increasing nor decreasing, if demand is unit elastic.

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If the price drops below $3,750, inelastic demand will cause marginal revenue to turn negative.

A profit-maximizing monopolist wouldn't expand output to the inelastic range of demand because it would reduce total revenue.

Consumers would demand 7 a day if De Beers decided to sell diamonds for $6,000 each.

Exhibit 5 repeats revenue schedules from Exhibits 3 and 4 and also includes a short market power run cost schedule similar to those already introduced in the two previous chapters.

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The profit is maximized when De Beers sells 10 diamonds per day.

Selling only one diamond would result in a big loss for De Beers.

It's not consistent with maximizing profit to charge the highest possible price.

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Even a monopolist that is initially profitable may eventually suffer losses because of rising costs, falling demand, or market entry of similar products.

Coleco, the original mass producer of Cabbage Patch dolls, went bankrupt after the craze died down.

The company that introduced the food processor, Cuisinart, filed for bankruptcy after facing many imitators.

The monopolist will produce in the short run if the price covers average variable cost.

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Economic profit can persist into the long run if a monopoly is insulated from competition.

The problem can be solved by comparing monopoly with the benchmark established in the previous chapter.

The long-run equilibrium price and output can be found in a perfectly competitive market.

The market is said to be efficient and to maximize social welfare when the marginal benefit that consumers derive from a good equals the marginal cost of producing that good.

There is no way of reallocating resources to increase the total value of output.

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The shaded rectangle has an economic profit equal to the market structure.

The monopolist's economic profit comes from what was consumer surplus under perfect competition.

The estimates suggest a deadweight loss of monopoly ranging from $475 to $2,400 per capita.

The deadweight loss described so far is different from the actual cost of monopoly.

If economies of scale are large, a monopolist might be able to produce output at a lower cost per unit.

Monopolists might keep prices below the profit-maximizing level in response to public scrutiny and political pressure, which may cause the deadweight loss shown in Exhibit 8 to overstate the true cost of monopoly.

Drug firms might try to avoid treatment by keeping prices low.

A monopolist might keep the price below the profit-maximizing level to avoid attracting competitors to the market.

According to some observers, when it was the only U.S. producer of aluminum, Alcoa kept prices low to discourage new entrants.

If resources must be devoted to securing and maintaining a monopoly position, they may impose a greater welfare loss than simple models suggest.

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These Monopoly rights have been given away by government agencies to the most deserving applicants.

Many applicants have spent millions of dollars on lawyers' fees, lobbying expenses, and other costs to make themselves appear the most deserving because of the value of these rights.

The efforts to secure and maintain a monopoly position are a waste of scarce resources because they don't add much to output.

Corporate executives might waste influence on public policy in a way that increases their resources by creating a more comfortable life for themselves, because some monopolies could still earn an economic profit even if the firm is inefficient.

Long lunches, afternoon incomes golf, plush offices, corporate jets, and excessive employee benefits might make company life more pleasant, but they increase production costs and raise prices.

Revenue was down 9 percent in 2009, the same as in 2008, and the Postal Service dealt with competition in the same way.

The amounts to about 40 percent of the world's total mail delivery can be found in the online history.

USPS pays no taxes made in the 1990s and is exempt from local laws.

It has a legal monopoly in delivering regular, compete with for-profit firms first-class letters and has the exclusive right to use the space inside your mailbox.

The USPS has suffered in recent years due to rising costs and competition from new technologies.

If you want to find the cost of sending first-class mail today is less than in 1970, try distance phone service.

The United Parcel Service has lower costs and less breakage because it is more mechanized and containerized than the USPS.

Businesses replaced other forms of advertising when the Postal Service raised third-class mail rates.

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FedEx and others have captured 90 percent of the overnight mail business, which is threatening the USPS's first-class monopoly.

Some economists don't think that monopolies manage their resources with as much vigilance as their competitors do.

Monopolists are more innovative than competitive firms because they are protected from rivals, according to some.

If a monopolist strays from the path of profit maximization, its share price will drop enough to attract someone who will buy a controlling interest and shape up the company, according to others.

Monopolists can sometimes increase profit by charging higher prices to people who value the product more.

Senior citizens and students pay lower admission prices to ball games, movies, and other events because of increased profit.

You may think that firms do this out of a sense of fairness to certain groups, but the primary goal is to boost profits.

First, the demand curve for the firm's product must slope downward, indicating that the firm is a price maker--the producer has some market power, some ability to set the price.

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Let's assume that the firm produces at a constant long-run average and marginal cost.

Think of panel as reflecting the demand of college students, senior citizens, or some other group more sensitive to the price.

A profit maximization is charging a lower price to the group.

The firm gets the same marginal revenue from the last unit sold to each group despite the price difference.

A monopolist facing two groups of consumers with different demand elasticities may be able to practice price discrimination to increase profit.

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Business seats offer more room than coach seats, and the food is a little better, but the difference in ticket prices far exceeds the airline's cost of providing each service.

Airlines charge different rates depending on how far in advance tickets are purchased.

The airlines limit discount fares to travelers who buy tickets in advance.

Depending on the circumstances, airlines use computer models to price discriminate.

IBM decided to slow down the home printer to 5 pages a minute in order to distinguish between the two groups.

When it comes to the price of admission, major amusement parks differentiate between local residents and out-of-towners.

Local residents are more sensitive to the admission price than out-of-towners, because they spend a lot on airlines and lodging just to be there.

The parks make discount coupons available at local businesses, such as dry cleaners, which vacationers are less likely to visit.

The marginal value of each unit consumed is shown in the demand curve.

For simplicity, the monopolist is assumed to produce at a con a different price for each stant average and marginal cost in the long run.

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By setting the price of each unit equal to the maximum amount consumers are willing to pay for that unit, the monopolist can earn a profit equal to the area of the shaded triangle.

Perfect price discrimination gets high marks because of allocative efficiency.

There is no reason to restrict output because a monopolist doesn't have to lower the price to all customers.

When compared with monopoly output, social welfare is enhanced by perfect price discrimination.

The firm's effort to capture more consumer surplus as profit is reflected in the pricing of cell phone service.

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Firms that produce patented items that provide unique benefits, such as certain prescription drugs, are the best examples of this.

Some firms may enjoy monopoly power in the short run, but the lure of economic profit encourages rivals to hurdle seemingly high entry barriers in the long run.

AT&T's monopoly on long-distance phone service crumbled as wireless technology replaced copper wire.

The Postal Service's monopoly on first-class mail is being eroded by fax machines, texting, and private firms that offer overnight delivery.

Our examination of perfect competition and pure monopoly yields a framework to help understand market structures that lie between the two extremes.

There are two market structures in the gray region between monopoly and perfect competition.

In the long run, a monopolist, un to entry are legal restrictions, such as patents and operating like a perfect competitor, that can continue to earn economic licenses and economies of scale over a broad range of output.

A monopolist is the only supplier of a product with less output than a perfectly competitive industry.

Because a monopolist that does not price dis with perfect competition because the loss of consumer surplus criminate can sell more only by lowering the price for all units exceeds the gains in monopoly.

A monopolist doesn't make demand for resale to those facing a higher price.

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The exclusive right to pro duction is awarded to inventors in the U.S.

The graph shows South Korean manufacturers selling new autos at a lower price.

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The monopolist's situation illustrated monopoly on the fraternities and sororities in the following graph.

The February 19, 2010, article "Is organization practicing price discrimination" can be found here.

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Extreme market structures include perfect competition and monopoly.

In the long run, entry and exit erase economic profit under perfect competition.

In a market where natural and artificial barriers keep out would-be competitors, a monopolist can earn economic profit in the long run.

The polar market structures offer a useful description of some industries in the economy.

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A market structure in which many producers offer products that are substitute but are not seen as identical by consumers.

Some convenience stores are closer to you than others, because the demand is different enough that each curve is not horizontal but downward.

Each power firm has a demand curve that slopes over the price it can charge.

Firms in monopolistic competition can enter or leave the market with ease because of the low barriers to entry.

It is designed to make a product stand out in a crowded field, such as a distinctive bottle of water and instant soup in a cup.

Physical differences are endless: size, weight, color, taste, texture, and so on.

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To protect regular grocery stores, they don't have long lines, the value of the name, and some are open 24/7.

Domino's pizza and Amazon books can be delivered to your door if you use the U.S. Patent ucts.

The image the producer tries to foster in the customer's mind is the final way products differ.

Suppliers of sportswear, clothing, watches, and cosmetics often pay for endorsements from athletes, fashion models, and other celebrities.

Hastens, a small, family-owned Swedish bedding company, underscores the months of labor required to craft each bed by hand as a way to justify the $60,000 price tag.

Some producers try to show high quality based on where the product is sold.

Each monopolistic competitor has control over the price charged because they offer a different product.

Any firm that raises its price can expect to lose customers to competitors.

The number of rival firms that produce similar products and the firm's ability to differentiate its product from those of its rivals determine the price elasticity of the monopolistic competitor's demand.

The paper was presented at the American Economics Association Annual Meeting.

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Exhibit 1 shows the price and quantity combinations that maximize short-run profit and minimize short-run loss.

The demand and cost conditions show that the firm earns economic profit in the short run.

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In such a situation, the firm must make a decision about whether to produce at a loss or not.

The rule here is the same as with perfect competition and monopoly: if price exceeds average variable cost, the firm in the short run loses less than if they shut down.

Firms that expect economic losses to persist may leave the industry.

Short-run economic profit attracts new entrants in the long run because of low barriers to entry.

New entrants draw customers away from other firms in the market because they offer similar products.

monopolistically competitive firms earn zero economic profit because market entry is easy.

In the long run, entry and exit shifts each firm's demand curve until economic profit disappears.

Short-run economic profit attracts new entrants in the long run because entry is easy in monopolistic competition.

Until economic profit disappears, the demand curve facing each monopolistic competitor shifts left.

A short-run economic loss can cause some firms to leave the industry in the long run.

Competition is like monopoly because firms in each industry face downward demand curves.

The evolution of an industry is one way to understand how firm entry erases short-run economic profit.

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The introduction in the 1970s of videocassette recorders, or VCRs, fueled demand for videotaped movies, which were originally so expensive that renting was the only way to go.

There are security deposits and membership fees that need to be paid at the rental stores.

The supply of video rentals increased faster than the demand.

In the 1990s, hundreds of cable channels and payper-view options offered a close substitute for video rentals.

The predictable effect on market prices was caused by the greater supply of rental outlets and increased availability of substitute.

A market developed to buy and resell tape inventories after many outlets gave up on the business.

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The industry "shakeout" continued even after the addition of DVD and video games.

One rental chain, Blockbuster, bought up weaker competitors and eventually accounted for more than a third of the U.S. market.

There was an excess inventory of tapes and a failed attempt to sell books, magazines, and snacks at its rental stores.

Wal-mart bought Vudu in 2010 to stream movies over the internet in high definition.

Cinema Now is partnering with Best Buy to stream movies online.

Amazon.com's Unbox, Microsoft's Xbox, Apple TV, and Netflix are some of the other download competitors.

Powerful rivals to the bricks-and-mortar movie rental business have arisen from technological change.

Consumers benefit from a wider choice and more competitive prices when producers are destroyed.

Each of the two market structures has demand curves facing individual firms.

A horizontal line drawn at the market price is a perfect competitor's demand curve.

A monopolistic competitor faces a downward-sloping demand curve because its product is different from those of other suppliers.

The competitor produces less than is required to achieve the lowest average cost.

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The tangency doesn't occur at the minimum point of average total cost because the demand curve slopes downward.

The firm with excess capacity could increase its rate of output to reduce average cost.

Each producer could easily serve more customers and lower average cost if they had excess capacity.

Increasing quantity competitive industries could reduce average cost by increasing excess capacity with gas stations, drugstores, convenience firms, restaurants, motels, bookstores, flower shops, and firms in other monopolistic ways.

The average cost per funeral is higher because the industry only operates at 60 percent of capacity.

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Consumers are willing to pay a higher price for a wider selection.

A few firms is an important market structure on the continuum of perfect competition and monopoly.

Any changes in the product's quality, price, output, or advertising policy may prompt a reaction from its rivals.

It's like a tennis match, where each player's actions depend on how and where the opponent hits the ball.

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A minimum efficient automobile plant could make enough cars to supply 10% of the U.S. market.

The barriers to entry in the automobile industry are created by economies of scale.

Exhibit 4 shows the long-run average cost curve for a firm.

The investment needed to reach the minimum efficient size is large.

Four out of five new consumer products don't survive because of the high start-up costs and well-established brand names.

The new detergent, Power, washed out, costing the company $160 million.

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Oligopolies try to block new entrants by offering a variety of products.

Multiple products from the same brand dominate shelf space.

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There are no single models or approaches that explain oligopoly behavior completely.

At one point, oligopolists may try to coordinate their behavior so they act collectively as a single monopolist.

The price wars that break out among airlines, tobacco companies, computer chip makers, and wireless service providers are at the other extreme.

Each has some relevance in explaining observed behavior, although none is completely satisfactory as a general theory of oligopoly.

Firms in the industry agree to divide the market and fix the price.

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Firms that are more skilled at bargaining get a bigger share of output and profit.

Some allocation schemes are based on geography or the historical division of output.

Each member country's share of estimated oil reserves is allocated in proportion to their output.

It is difficult to negotiate an acceptable allocation of output among firms that are in the same industry.

As the number of firms increases, consensus becomes harder to achieve.

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New firms will eventually force prices down, squeeze economic profit, and disrupt the Cartel if it can't prevent new entrants.

The temptation to cheat on the agreement is the biggest problem in keeping the group together.

One firm can increase sales if it offers extra services, secret rebates, or other concessions.

The spotty history of the organization shows the problems of establishing and maintaining a group.

Poor countries that rely on oil for revenue argue over the price and market share.

Canadian oil sands were economical because of the high price.

Efforts to increase the world supply of a number of products have failed so far.

The leader of the market tacitly starts any price changes, and others follow.

Public pressure on U.S. Steel not to raise prices eventually shifted the price-leadership role onto less prominent producers, resulting in a rotation of leadership among firms.

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If there are barriers to entry, a profitable price attracts new entrants, which could undermine the price- leadership agreement.

Some firms are tempted to cheat on the agreement to boost sales and profit.

The game used to consider a situation in which two thieves are caught near a crime scene and brought to the police headquarters, where they can be questioned in separate rooms.

The years each prisoner can expect to spend in jail are shown in the matrix.

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Ben and Jerry can expect the rewards to be based on the strategy they pursue.

The prison time in years each can expect is indicated by the numbers in the matrix.

The left column of Exhibit 6 shows the penalties if Jerry confessed.

Pricing policy and advertising strategy are examples of the prisoner's dilemma.

In a rural community with only two gas stations, consider the market for gasoline.

If both charge the low price, they split the market and each make $500 per day.

If both charge the high price, they split the market, but profit jumps to $700 each.

Exhibit 7 shows the payoff matrix, with Exxon's strategy down the left margin and Texaco's across the top.

The prisoner's dilemma outcome is an equilibrium because each player maximizes profit.

The price the other firm chooses can't be changed by the gas station.

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The matrix shows the daily profit each gas station can expect to make.

If you think the other firms will cheat on the cartel by cutting the price, then you should use strategies chosen by other participants as well.

All members have an incentive to cheat, even if they earn more by sticking to the agreement.

Competition locks rivals in a steel-cage death match for survival in industries with just two or three firms.

In 2010, McDonald's and Burger King were each selling two beef patties with one slice of cheese on a bun for $1, a dollar-menu battle between the McDouble and the Dollar Double.

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The matrix shows the annual profit each soft-drink company can expect to make.

Consider the marketing strategies of Coke and Pepsi as a final example of a prisoner's dilemma.

The choice is between a moderate budget or a big budget that involves multiple Super Bowl ads, showy in-store displays, and other marketing efforts aimed at attracting customers from each other.

Each company's profit will be limited to $2 billion a year if each adopts a big budget.

If one adopts a big budget but the other does not, the heavy promoter captures a bigger market share and earns $4 billion, while the other loses market share and earns $1 billion.

Exhibit 8 shows the payoff matrix for the two strategies, with Coke's choices listed down the left margin.

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It makes both players better off if the solution involves clamming up, maintaining a high price, or adopting a moderate marketing budget.

The reward for cooperation and the punishment for cheating are offered to the other player in one round of the game.

You have to decide if you want to play a game in which you drive on the right or left side, or if you want to play a game in which you drive on the left side.

If the driver a Nash equilibrium occurs from the opposite direction drives on his or her left, you don't have to worry about passing each other because the cost to each of you is zero.

oligopoly gives rise to all kinds of behavior because firms are interdependent.

Firms may try to coordinate their pricing policies according to models presented in this chapter.

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If oligopolists colluded but only operated with excess capacity, the price would be higher and the quantity lower than with perfect competition.

The entire market for a specific type of computer chip is dominated by two rivals, Intel and Advanced Micro Devices, who are always at each other's throats, keeping prices and profits down.

The oligopolists act like perfect competitors if the barriers to entry are lower.

Perfect competitors are prevented from earning more than a normal profit by easy entry.

There are barriers to entry for firms in the industry, such as economies of scale or a way to differentiate a product, which allow them to earn long-run economic profit.

With barriers to entry, we should expect profit to be higher in the long run.

Some economists think the higher profit rates are evidence of market power.

The highest rate of profit is earned by firms in oligopolistic industries.

The higher profit rates in oligopolistic industries don't stem from market power per se.

The economies of scale in these large firms result in higher profit rates.

An individual firm can achieve greater market power and higher profit by differentiating its product, as discussed in the closing case study.

One way a firm can increase market power is to offer a differentiated product.

Some of the largest fashion distributors are outsourcing to suppliers that have the ability to make high-quality garments with over 3,300 stores.

The Intidex Web site has a phisticated feedback mechanism that can be used to gather market intelligence.

Sales associates carry personal digital assistants to relay information on fashion about their philosophy and trends and customer demand back to the company's team of 200 designers in Spain.

Direct shipments from factory to shops eliminate the need for costly warehouses.

The company makes new items in small batches so if something doesn't sell, there isn't much left over.

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The company relies on prime store location and word of mouth to advertise, which is perhaps the most unusual of strategies.

Making most of its own apparel and outsourcing the rest reduces delays, exploits customer feedback, maintains flexibility, and ensures quality, according to the company.

The constant supply of popular items and new clothing lines help differentiate the products.

The analytical results of this chapter are not as clear-cut as for the polar cases of perfect competition and monopoly.

Perfect competitors earn a normal profit in the long run because entry barriers are low.

If new entry is restricted, monopolists and oligopolists can make economic profit.

Government policies aimed at increasing competition are examined in a later chapter.

The chapter moved us from the extremes of perfect competition and monopoly to the gray area of most firms.

When we explore the government's role in promoting market competition, some of these issues will be reexamined.

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Each monopolistic competitor faces a downward-sloping to another fi rm's changes in quality, price, output, services, or demand curve because an oligopoly consists of just a few fi rms.

It is diffi cult to analyze and predict sellers in monopolistic competition.

In the short run, monopolistic competitors that can at least tively like a monopolist; (b) price leadership, in which one fi rm, cover their average variable costs maximize profi ts or mini usually the biggest one, sets the price for the industry and Rivals could increase differentiated oligopolies, such as steel or oil, if they cooperated.

Each faces incentives that encourage commodity, meaning that it does not differ across fi rms.

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If the industry is perfectly or monopolistic, the cost curves for each fi rm are the same.

The same equilibrium quantity can be produced by perfectly and monopolistically competitive dustries.

The long-run equilibrium price and quantity can be found if the petitive faces the following demand and cost structure.

Use a cost and revenue graph to explain the initial short-run Dollars per unit in the video rental business in monopolistic competition.

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A professor discovers that two students have virtually the same questions when he uses the following price and profi t data to answer them.

Go to the Global Economic Basic Search box at the top of the page and enter the term "game Crisis Resource Center".

The Basic Search box at the top of the page can be used to analyze economic behavior.

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It would cost you an extra $500 per week to upgrade to a larger, faster mower called the Lawn Monster.

The bigger mower would allow you to mow 30 lawns per week, so your total revenue would double.

Farmer Jones has the chance to lease 100 acres of farmland.

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The willingness and ability of buyers and sellers to engage in market exchange is similar to the demand and supply for final goods and services.

A carpenter's pay is derived from the demand for his work, such as a kitchen cabinet or a new deck.

The demand for transporting goods leads to pay for a truck driver.

The nature of resource demand helps explain why professional baseball players earn more than professional hockey players, why brain surgeons earn more than tree surgeons, and why drivers of big rigs earn more than delivery vans.

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As the relative prices of carpenters, coal, security alarms, and backhoes fall, so does the demand for them.

The framing lumber in residential construction is published by a key resource.

For ex from Random Lengths and the ample, the price per thousand Chicago Mercantile Exchange board feet of framing lumber is each week.

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By March of 2010, lumber prices had increased to about $300 per thousand board feet.

If carpenters can earn more building homes than making furniture, and if the two activities are equally attractive, they shift into home building until wages in the two uses are equal.

The gap encourages some carpenters to move from furniture making into home building, pulling up the wage in furniture making and driving down the wage in home building.

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The differential causes some carpenters to shift from furniture making to home building until the wage is the same in both markets.

The market wage increases from $20 to $24 as a result of the reduction of labor supplied to furniture making.

The market wage is reduced by the increase of labor supplied to home building.

When the wage reaches $24 in both markets, labor supply shifts left for furniture making and right for home building.

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It's impossible for upstaters to supply land to New York City because of the difference.

The price of farmland varies widely, reflecting differences in the land's fertility and location.

Wage differentials are related to the costs of acquiring the education and training needed to perform certain tasks.

Academic economists earn less than corporate economists due to the fact that they have more freedom in their daily schedules, their attire, their choices of research topics, and even in their public statements.

Let's consider three resource markets to get a feel for the difference between opportunity cost and economic rent.

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The red vertical line in panel (a) of Exhibit 3 shows that the 10 million acres have no alternative use.

All earnings are shown by the blue-shaded area because the land's opportunity cost is zero.

The equilibrium quantity of the resource is determined by fixed supply and demand.

The elastic supply curve in panel (b) of Exhibit 3 shows the market for janitors in the local school system.

Resource suppliers earn economic rent if the supply curve goes upward.

If the market wage for semiskilled work in your college community increases from $10 to $20 per hour, the quantity of labor supplied would increase, as would the economic rent earned by these workers.

Earnings consist of both opportunity cost and economic rent when resource supply goes up.

Resource with alternative uses tend to earn more economic rent than specialized ones.

If O'Neal didn't play basketball, he would have taken a huge pay cut, but the janitor could have found another job that paid the same.

Economic rent is the difference between opportunity cost and earnings.

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The resource can earn $10 per hour in its best alternative use if the supply curve is horizontal.

Whether we are talking about labor, capital, or both, the same factors affect resource demand.

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When production costs were introduced in Chapter 7, we considered a moving company, where labor was the only variable in the short run.

Column 1 lists possible employment levels of the variable resource.

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Marginal revenue product is dependent on how much additional output the resource produces and how much it sells for.

The simplest calculation of marginal revenue product is when the firm sells in a perfectly competitive market.

The marginal revenue product falls as the firm uses more resources.

The firm needs to lower the price from $40 to $35 if they want to sell 9 more units.

The marginal revenue product curve slopes downward for firms with market power because of diminishing marginal returns and because additional output can only be sold if the price falls.

A profit-maximizing firm is willing to pay more for an additional unit of the resource than it would for the marginal revenue product.

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The marginal revenue product curve slopes downward for firms that sell in competitive markets.

The marginal revenue product curve slopes downward for firms with market power because of diminishing marginal returns and because additional output can only be sold if the price falls.

The marginal resource cost of labor is the market wage.

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Labor maximization's marginal revenue product is equal to the market wage.

We know that in Exhibit 6 a seventh worker would add $100 to cost but would add less to revenue, so hiring a seventh worker would reduce the firm's profit.

The marginal revenue product is the firm's demand curve for that resource.

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Each unit of a resource needs to pull its own weight and bring in additional revenue to cover the cost.

When the market wage is $100 per day, the firm maximizes profit by hiring six workers.

Exhibit 4 shows that a sixth worker adds 5 units to output, which sells for $20 each, yielding a labor's marginal revenue product of $100.

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