Scribd
Upload
119 views8 pages

Oligopoly Diagram - Economics Help

Oligopoly Market Structure analysis

Uploaded by

Lungisa Dyasi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
119 views8 pages

Oligopoly Diagram - Economics Help

Oligopoly Market Structure analysis

Uploaded by

Lungisa Dyasi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 8

   Menu

Oligopoly Diagram
28 November 2019 by Tejvan Pettinger

There are different diagrams that you can use to explain 0ligopoly markets.

It is important to bear in mind, there are different possible ways that firms in
Oligopoly can behave.

1. Kinked Demand Curve Diagram


In the kinked demand curve model, the firm maximises profits at Q1, P1 where
MR=MC. Thus a change in MC, may not change the market price. It suggests prices
will be quite stable.

The kinked demand curve makes certain assumptions

Firms are profit maximisers.


If one firm increases the price, other firms won’t follow suit. Therefore, for a
price increase, demand is price elastic.
If one firm cuts price, other firms will follow suit because they don’t want to
lose market share. Therefore, for a price cut, demand is price inelastic.
This is how we get the ‘kinked demand curve

However, the kinked demand curve has limitations

It doesn’t explain how the price was arrived at in the first place.
Firms may engage in price competition. 

Collusive Oligopoly
If firms in oligopoly collude and form a cartel, then they will try and fix the price at
the level which maximises profits for the industry. They will then set quotas to keep
output at the profit maximising level.

The price and output in oligopoly will reflect the price and output of a monopoly.
The Quantity Qm will be split between the firms in the cartel.

Economies of scale for Oligopolies


Oligopolies may benefit from economies of scale. This enables lower average costs
with increased output. FIrms in oligopoly producing at Q1 achieve lower prices of
AC1.

Efficiency of firms in oligopoly

Larger firms can benefit from economies of scale – lower average costs –
which might outweigh other inefficiencies.
Allocative efficiency? Not clear but firms operating under kinked demand
curve may end up setting price higher than marginal cost. Also, firms able to
successfully collude will set prices higher than MC. If oligopolies are
competitive then prices will be lower and more allocative efficient.
Dynamic efficiency? Firms in an oligopoly have profits they can use for
investment in new products. Also, competitive pressures encourage them to
innovate.

Related

How firms in Oligopoly compete



Oligopoly
View: all Revision Guides

A-Level revision guide £8.95

A-Level Model Essays £9.00



Get new posts by email:

Enter your email

Subscribe

Recent Posts

Denmark vs UK Economy
What’s Really Happening to UK Economy? – Recession or Coming Boom?
UK Economic Decline During Past 100 Years
How the Rich Avoid Paying Tax
How Does Immigration Affect the Economy and Housing?

Selected Posts

Causes of Wall Street Crash 1929


Causes of Great Depression
UK economy in 1920s
Keynesian Economics
The problem of printing money
The importance of economics
Understanding exchange rates
10 reasons for studying economics
Impact of immigration on UK economy


Random Glossary term
Bank of England Interest Rates

UK economy stats

Shop

Get Revision Help.

Study Guides for Exams

About

Tejvan Pettinger studied PPE at LMH, Oxford University. Find out more

Terms & Conditions | Privacy Policy | Contact | © - Economicshelp.org 2024

A RAPTIVE PARTNER SITE

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy