Chapter 17

Chapter 17 transitions to focusing on oligopoly markets. In oligopolies, there are only a few sellers, but they all sell similar or identical products. Competition in these markets is high, so the game theory was created, which analyzes how people behave in a strategic situation. In oligopolies its a lot about reaction, so firms gravitate to a nash equilibrium. This is when a situation in which economic factors interact with one another, and then each choose their best strategy, based on those around them. Firms in an oligopoly individually choose their output, which winds up being more than that of a monopoly, but less than that of a competitive firm. The oligopoly price is also less than that of a monopoly, but more than competitive price. Occasional, an agreement can occur in which firms in a market produce the same output or charge the same price. Groups of firms acting in unison are known as cartels. Duopoly are oligopolies that have only two members in the market. In oligopolies, firms also apply the dominant strategy, in which it is the best strategy for the firm regardless of what strategies other firms are employing. Oligopolies face the prisoners dilemma in which the situation explains why cooperation is difficult to keep mutually beneficial. Policy makers use antitrust laws that prevent oligopolies from reducing competition among themselves. However, this can interfere with legitimate business purposes.

Chapter 16

Chapter 16 adds on to the previous chapter by analyzing the behavior and traits of monopolistic competitive market. An oligopoly is when there are only a few firms selling a good that is similar or identical. However, a monopolistic competitive market has many firms that sell the same good that is similar, but not identical. Another characteristic along with many sellers and product differentiation is the fact that firms have free entry and exit. However, because of this, in the long run the number of firms in a market balances out to the point in which economic profits are not zero. However, since it is economic profits being zero, accounting profits is still positive as they do not include fixed costs like economic profits. Unlike perfectly competitive markets, a monopolistic competitive market has a downward sloping demand due to the fact that the goods in a monopolistic competitive market are not identical. This allows for profit maximization to occur. When analyzing the graphs for a firm in a market, if the average total cost curve is below the demand curve or "price," then it is making a profit, but if the average total cost curve is above the price, then the firm is making losses. However, just like monopolies, since the  price is over marginal cost, it deters some possible consumers from purchasing the good, leading to a deadweight loss. However, this cannot be fixed by regulation as it is like regulating natural monopolies in which the monopolies price would be lowered to that of its marginal cost, meaning losses for the firm.

Chapter 15

The previous chapter had focused on the aspects of firms in perfectly competitive markets. In Chapter 15, the focus shifts onto the aspects of monopolies. Monopolies are the sole seller in markets as well as the price makers. As there are no close substitutes, the company can charge what they want. However, monopolies do face some barriers, those being government regulation, production process, and monopoly resources. For example, De Beers used to have a monopoly on diamonds as they controlled nearly all of the diamond mines. Thus, they could set the price to what they desired. Natural monopolies occur when one company can produce the same amount of output for less input. In monopolistic markets, in order to support an increase in production, the price must be lowered. When marginal revenue is greater than marginal cost, increase production. However, when marginal revenue is less than marginal cost, decrease production. Profits are maximized when marginal revenue is equal to marginal cost. In competitive firms price is equal to marginal revenue which is equal to marginal cost. However, in monopolies, price is greater than marginal revenue, and marginal revenue is equal to marginal cost. A monopoly's profit is calculated by taking the area in between demand and average total cost, extending to the length of quantity. Deadweight can occur as well. Socially efficient quantity is seen where the demand curve and marginal cost intersect with each other. Price discrimination is the business practice of selling the same good at different prices to different customers.