Comparing Market Structures Exercise 9-2

Figure A represents the Average and Total Profits of perfect competition market. At the Q1 output the average cost is AC1, the total profit is equal to the average profit times the quantity produced.

Figure B represents the Monopolistic competition market, D1 is an elastic demand curve with its associated marginal revenue curve MR1. AC and MC are the normal U-shaped cost curves. The area P1aQ10 represents total revenue. Similarly, C1bQ10 represents total costs.

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Figure C represent the Oligopoly markets, the discontinuity in the marginal revenue curve is the result of the kink in the demand curve. MC1 is the original marginal cost curve. Quantity Q1 is the profit-maximizing output that results in price P1. An increase in marginal cost from MC1 to MC2 results in no change in equilibrium price or quantity.

Figure D is for the Monopoly market, its present AC curve is higher than the demand curve at all output levels. Its best option will be to minimize its losses by producing at the point where its marginal revenue equals its marginal cost, that is where these curves intersect at a quantity Q1. It would charge a price of P1 and would incur an economic loss denoted by the shaded area, AC1abP1

Oligopoly and Game Theory Exercise 8-1

Game Theory

The main idea behind the game theory is finding a method of analyzing of a firm behaviour that highlights the mutual interdependence between firms, this idea can be applied to any situation where people seek to work out the best possible action, and also includes the possible reactions of the rivals.

Game theory was first developed by economists John Neumann and Oskar Morgensten in the 1940s to analyze strategic behaviour.

Most of the business agreements either between the Oligopoly firms or between governments are an example of game theory as rational profit-maximizers is applicable, watching the price oil is an evidence of game theory in between countries members in (OPEC).

The various strategies and outcomes or payoffs of the game theory players are usually presented in the form of a matrix, the matrix describes the results of the players behaviour in four cells taking the four possible results: 1- the first player cheat and the second don’t, 2-the second player cheat and the first don’t, 3-both players cheat, 4- both do not cheat.

If rivals decide that instead of competing they are going to collude, then the form of collusion make take different forms such as dividing up the market on the basis of geography or dividing the whole market on the basis of existing client list or by general agreement on an output quota for each form. The formal agreement of cooperation among firms is called cartel.

Oligopoly

Oligopoly is a market with a few large firms, while the perfect competition is with many firms (lots of sellers and buyers) and the monopolistic competition market in which there are many firms that sell differentiated products.

We may clarify the Similarities and differences between each type of market in the below table

Type of the Market	Number of firm	Type of product
Perfect Competition	Many	Identical
Monopolistic competition	Many	Differentiated
Oligopoly	Few	May be Identical (for undifferentiated OligopolyOr Differentiated (for the Differentiated Oligopoly

The perfect Competition market is considered the best choice, the main feature of this type of market is that all producers are price takers, so no one has a control of the prices and the consumer will get the product with standard prices, the producers may work to reduce the cost of their products to increase their profit

Another feature is that the products of this type of market is identical and the buyers also are price takers, and this will help me as a consumer to utilize the products in an efficient manner and at the same time the type of this market ensures that no shortage will happen to the products due to the producers changes of the prices.

If we all agree that the perfect Competition market is not practically exist then as a consumer I will prefer the Oligopoly market as the competition in this type of markets is not about the prices!

Defining Monopolistic Competition Ecersise 7-1

Monopolistic Competition Definition: may be defined as a market with some special features, A market where the firms differentiate their products and the competition between the firms depends on who differentiate its products more than the others, they may differentiate their products by developing a brand name, product logo or packaging that distinctive the products than the others. They may also use the advertisement to advertise their products and this depends on the size of the company and how much it can pay for the advertisements.

Another feature of this market, is the control over price, unlike the perfect competition markets where all the firms are price takers, the monopolistic completion firms have some control over the prices.

Monopolistic Competitive Companies

Size:	Small Company	Medium Company	Large Company
Features:
Differentiated products	OMEGA watches	Ray-Ban Sunglasses	KFC
Control over price	MAX	Tim Hortons	Co-op
Mass advertising	Dolce & Gabbana	Colgate Dental	Nestlé
Brand name goods	Tupperware	Rollerblade	Aspirin
Distinctive packaging	Burberry Bags	Johnson & Johnson	Kit Kat

Nike may be fitted in the raw of the differentiated products, its logo and its products made it a very well know brand and a product that is a very high in demand due to its differentiated products. And it became a brand name in the markets.

Dollar Store may be fitted in with the feature of Control over price.