Microeconomics I
Fiches de réveisions
Fiches de réveisions
Set of flashcards Details
| Flashcards | 336 |
|---|---|
| Language | English |
| Category | Macro-Economics |
| Level | University |
| Created / Updated | 28.05.2019 / 02.03.2025 |
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Monopolistic Competition: Assumptions
Large number of firms selling differentiated products
Free entry and exit
Large number of firms selling differentiated products
Each firm faces a downward-sloping demand curve for its product
Firms compete for customers in terms of both price and the kind of
products they sell
Monopolistic competition: diagram
Oligopoly: Assumptions
Small number of sellers with relatively high market shares
Price-making sellers
Sellers behave strategically (i.e. firms recognise their interdependence)
Many small, price-taking buyers
Oligopoly: strategies
Cournot Competition: Main Assumptions
Simultaneous quantity setting
Few firms producing homogeneous or differentiated products (typically, we will look at two firms producing identical products)
After the output decisions, price adjusts according to the demand function (in case of homogeneous products, p = p(q) where
q = q1 + q2)
Game between the firms where each firm maximises its profits given the output of the other firms
Cournot competition: Output decision
Since the profit maximization equation, derive and get the output decision with MR = MC, then write the best reponse function
Cournot equilibrium
Cournot Competition: Example - Reaction Functions Derivation
Cournot Competition: Example - Equilibrium Determination
Many Firms in Cournot Equilibrium
Bertrand Competition: Main Assumptions
Simultaneous price setting
Few (two or more) firms producing identical products
Firms have same constant average and marginal cost
No capacity constraints
! We are looking for a Bertrand equilibrium of this game, i.e. a pair of prices (p1;p2) such that each firm is maximising its profit given the price of the other firm
Bertrand Competition: Equilibrium
Prices or quantities (Cournot VS Bertrand)
Stackelberg Competition: Main Assumptions
Sequential quantity setting
Two firms producing identical product
Assume firm 1 chooses its quantity first. Firm 2 observes q1 and then chooses q2.
! Backward solution: Solve firm 2’s problem first as firm 1 (the leader) needs to anticipate the follower’s reactions.
Stackelberg Competition: Example
Consider an industry which is characterised as follows:
Two firms producing an identical good
(Inverse) demand is given by: p(y) = a - by = a - b(y1 + y2)
Each firm has a zero marginal cost
Firm 1 has a first-mover advantage
Find the Stackelberg equilibrium (y1;y2) for this industry.
Solve the follower’s problem to obtain the reaction function.
2 Solve the leader’s problem.
The follower's problem
The leader's problem
The Stackelberg equilibrium
Leader’s profit-maximizing output, Follower's profit-maximizing output, Individuals output, Industry output
Collusion
Oligopoly: Comparing the outcomes
Monopoly / Collusion VS Cournot VS Stackelberg
Differents payoffs
In exchange, we relax some assumptions
Identical consumers
Exogenous prices
general equilibrium analysis
Prices of other goods may/will affect people’s demands and supplies for a particular good (e.g. substitutes, complements ...)
Feasible allocation
xA1 + xB1 < wA1 + wB1 and xA2 + xB2 < wA2 + wB2
Edgeworth-Bowley Box: Endowment
All points in the box, including the boundary, represent
feasible allocations of the combined endowment
Edgeworth-Bowley Box: Trade
Pareto-improving allocation
An allocation of the endowment that improves the welfare of a consumer without reducing the welfare of another
Pareto improvement and trade
A Pareto efficient allocation is such that
there is no way to make all the people involved better off
there is no way to make some individual better off without making someone else worse off
all the gains from trade have been exhausted
there are no mutually advantageous trades to be made
Pareto Efficiency
Edgeworth-Bowley Box: Pareto Efficiency
Contract curve (Pareto set)
<~the#et/f!ll!reto%fficient/ints)n$he%dgeworth"ox
Trade and Pareto Efficiency: The Core
Economic Problem
Given initial endowments, what is the allocation that ensures that
consumers maximise their utility
demand equals supply in all markets
Edgeworth Box: Disequilibrium
Edgeworth Box: adjustment to equilibrium
