AP* Microeconomics Unit 4: Imperfect Competition Topic 4.1- Imperfect Competition- List the characteristies of each marker structure 1. Perfect Competition = Many small firms Identical products ~ Easy to enter/exit = No advertising = Prive takers 2. Monopolistic Competition = Large number of sellers - Differentiated products ~ Easy to enter and exit ueprice competition = Some control over price - Few large finns (less than 10) - High bantiers = Control over price + Mutual interdependence 3. Oligopoly 4. Monopoly ~ One firm - Unique product - High bamtiers to enter and exit 3. Why is demand greater than marginal revenue for all imperfectly competitive firms? To sell another unit. the firm must lower the price of the next unit and the units it could have sold at a higher price. (It cannot price discriminate) 6. What are common barriers that prevent other firms fiom entering an imperfectly competitive market? Economies of scale (high start-up costs), control of scare resources, governmental or legal barriers: Topic 4.2- Monopoly 1. Draw aud label a monopoly making profit Pricey MC Quantity 7. Draw demand, marginal revenue, and total revenue for an imperfectly competitive firm. Price Elastic Inelastic Total Revenue Qe Quantity 8, Identify the elastic and inelastic range of the demand curve, See above 9. Label the quantity where total revenue is maximized Qrp See above. Where MR = 0. 10. How is the demand and marginal revenue above different than a perfectly competitive firm? A perfectly competitive firm has a horizontal demand and marginal revenue because firms are price takers. Price makers have a downward-sloping demand, Do nat post online. © Copyright Jacob Clifford, ACDC Leadership, 2019Topic 4.3- Price Discrimination 1. Identify the three conditions necessary for a fim, to price discriminate -The firm must not be a price taker ~The firm must be able to segregate the market and identify consumers that are willing to pay more ~The firm must be able to make sure consumers cannot resell the product to other consumers 2. Ifa regular unregulated monopoly started perfectly price discriminating, what would happen to consnmer surplus and deadweight loss? There Would be no consumer surplus and no deadweight loss 3. Draw and label a price discriminating monopoly Practice: Use the graph to identify the following Marginal Cost PRICEICOST. Average Total Cost Marginal Revenue Rr The price and quantity for an umegulated monopoly Ps, Qs . The consumer surplus for an unregulated monopoly ABP; . The the deadweight loss for an unregulated monopoly BCG . The price and quantity at the allocatively efficient output Ps, Qo . The cousumer surplus at the allocatively efficient output ACP, . The quantity where total revenue is maximized Qs, MR=0 . The elastic range of the demand curve AD . The quantity produced if this firm price discriminates Qo . The price aud quantity where the firm makes no economic profit Ps, Qs Topic 4.4 Monopolistic Competition 1. Draw monopolistic competition in the long-run Pric MC ATC P=ATC,No economic profit in the long-run ‘Quantity 2. How is monopolistic competition different than perfect competition? Perfect competition has identical products so firms are price takers (D is horizontal). Monopolistic competition has differentiated products so firms are price makers (D is downward-sloping) 3. Ifa monopolistically competitive finn is ‘making a profit in the short-run, what will happen to the demand and number of firms in the long mun? New firms enter to make profit. Firms must share same amount of consumers. Demand for each firm falls until each firm makes no economic profit ‘Do not post online, © Copyright Jacob Clifford, ACDC Leadership, 2019Topic 4.4- Oligopoly aud Game Theory ‘Assume that two business owners are deciding | Answer the questions using the payoff matrix: between advertising now and advertising later. The _|2.If David decides to advertise now and chart shows expected profit with Lindsey’s on the left | Lindsey decides to do it Iater. what is David David"s expected profit? $1000 Now Later 3.What is Lindsey's dominant strategy? Now 4. What is David's dominant strategy? None $5,000, $4,000 $3,000, $3,500 || 5.1f both owners have the information but do not actively collude, what will be the outcome? Both will choose Now Later $900,$1,000 $1,500, $1,800 | Assume the advertising company offers a deal that increases the profit for both owners by $2,000 but only if they advertise later. Based 1. Define Nash Equilibrium on these changes: The optimal outcome where neither player can make | 6, What is Lindsey’s dominant strategy? None ‘themselves better off by deviating from the current 7.What is David's dominant strategy? Later strateg Market Structures Venn Diagram Fill in each area with the different characteristics of the four market structures Perfect Competition Cost Curves “Motivation for Profit ‘*Price Maker (D>MR) ‘High Barriers “Ability to Make LR Profit 1 ‘inefficient Monopoly