Markets With Only a Few Sellers Because of the few sellers, the key feature of oligopoly is the tension between cooperation and self-interest Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Markets With Only a Few Sellers Because of the few sellers, the key feature of oligopoly is the tension between cooperation and self-interest
Characteristics of an Oligopoly Market o Few sellers offering similar or identical products o Interdependent firms o Best off cooperating and acting like a monopolist by producing a small quantity of output and charging a price above marginal cost H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Characteristics of an Oligopoly Market u Few sellers offering similar or identical products u Interdependent firms u Best off cooperating and acting like a monopolist by producing a small quantity of output and charging a price above marginal cost
A Duopoly Example a duopoly is an oligopoly with only two members. It is the simplest type of oligopoly. H arc Inc. items and derived items c ht o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. A Duopoly Example A duopoly is an oligopoly with only two members. It is the simplest type of oligopoly
A Duopoly Example: Demand Schedule for Water Quantity Price Total Revenue $120 $0 10 110 1.100 100 2000 30 90 2.700 40 80 3,200 3.500 60 60 3.600 70 50 3.500 80 3,200 90 30 2.700 100 2.000 10 10 1,100 120 Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. A Duopoly Example: Demand Schedule for Water Quantity Price Total Revenue 0 $120 $ 0 10 110 1,100 20 100 2,000 30 90 2,700 40 80 3,200 50 70 3,500 60 60 3,600 70 50 3,500 80 40 3,200 90 30 2,700 100 20 2,000 110 10 1,100 120 0 0
A Duopoly Example: Price and Quantity Supplied o The price of water in a perfectly competitive market would be driven to where the marginal cost is zero. P=MC = SO Q=120 gallons oThe price and quantity in a monopoly market would be where total profit is maximized P=$60 Q=60 gallons H arc Inc items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. A Duopoly Example: Price and Quantity Supplied uThe price of water in a perfectly competitive market would be driven to where the marginal cost is zero: P = MC = $0 Q = 120 gallons uThe price and quantity in a monopoly market would be where total profit is maximized: P = $60 Q = 60 gallons