HAT Manifesto Part 1/3 - Rubric Cube - 250406 edit

 Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 5 Firm Behavior and the Organization of Industry

Chapter 16 of 36 - Monopolistic Competition

Section 3 of 15

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Previously we saw in a perfectly competitive market

· firms are price takers, they must accept the market price and cannot influence the price

· the price always equals the production marginal cost

· in the long run firms entry into and exit out of the market drives economic profit to zero leaving only a normal profit for each firm

· in the long run the price equals average total cost

We saw in a monopoly market

· firms are price makers, they are able to set prices

· firms can use their market power to keep prices above marginal cost

· leading to an economic profit for the firm

· leading to a deadweight loss for society

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Perfect competition and monopoly are the market extreme forms.

Perfect competition occurs when there are many firms in a market supplying identical products.

Monopoly occurs when there is only one supplier firm in a market.

Most markets and firms include elements of both competition and monopoly so can be identified and described differently.

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The typical firm in the economy

· faces competition, but the competition is not strong enough to make the firm a price taker

· has some degree of market power, some ability to set its prices

Most industries are between perfect competition and monopoly, a situation called imperfect competition.

There a two types of imperfect competition markets

· monopolistic competition

· oligopoly

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Oligopoly is a market with only a few sellers.

Each seller offers a product similar or identical to those of other competing sellers.

To determine if a market is an oligopoly economists commonly measure a market's domination by a small number of firms with a statistic called the concentration ratio.

This ratio is the percentage of total output in the market supplied by the four largest firms.

In the U.S. economy, most industries have a four-firm concentration ratio under 50 percent.

Highly concentrated industries considered oligopolies include

· breakfast cereal, concentration ratio of 83 percent, 83 percent of total output comes from the four largest firms

· aircraft manufacturing, 85 percent

· electric lamp bulbs, 89 percent

· household laundry equipment, 90 percent

· cigarettes, 99 percent

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an oligopoly has a few sellers

kasen ni shōsū urite

寡占に少数売り手