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PERFECT COMPETITION AND DEMAND: The demand curve for the output produced by a perfectly competitive firm is perfectly elastic at the going market price. The firm can sell all of the output that it wants at this price because it is a relatively small part of the market. As a price taker, the firm has no ability to charge a higher price and no reason to charge a lower one. The market price facing a perfectly competitive firm is also the firm's average revenue and, most importantly, its marginal revenue.
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Lesson 20: Oligopoly | Unit 4: Analysis
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Page: 15 of 24
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Topic:
Kinked-Demand Curve
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- How and why oligopoly firms have rigid prices can be illustrated with the use of the kinked-demand curve.
- A kinked-demand curve is a demand curve with two distinct segments with different elasticities that join to form a kink.
- The two segments of a kinked-demand curve are:
- A relatively more elastic segment for price increases.
- A relatively less elastic segment for price decreases.
- The most striking feature of this curve is that it comes it three parts:
- One part corresponds with the relatively more elastic demand curve for price increases.
- The second part corresponds with the relatively less elastic demand curve for price decreases.
- The third part is the vertical line connecting these two segments.
- This disjointed marginal revenue curve is the key to oligopoly price rigidity.
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CARTEL A formal agreement between businesses in the same industry, usually on an international scale, to gain market control, raise the market price, and otherwise act like a monopoly. The most famous international cartel is the Organization of Petroleum Exporting Countries (OPEC), which seeks to exert control over the world oil market. Other cartels have existed, or still exist, in the global markets for uranium, diamonds, long distance telephone services, and airlines.
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WHITE GULLIBON
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Today, you are likely to spend a great deal of time at a garage sale hoping to buy either decorative celebrity figurines or a flower arrangement with anything but tulips for your grandfather. Be on the lookout for the last item on a shelf.
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In the late 1800s and early 1900s, almost 2 million children were employed as factory workers.
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"In order to create there must be a dynamic force, and what force is more potent than love." -- Igor Stravinsky, violinist
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NE
Nash Equilibrium
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