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One form of collusive oligopoly is a cartel, [18] [better source needed] a monopolistic organisation and relationship formed by manufacturers who produce or sell a certain kind of goods in order to monopolise the market and obtain high profits by reaching an agreement on commodity price, output and market share allocation. However, the ...
Martin Shubik developed the Bertrand–Edgeworth model to allow for the firm to be willing to supply only up to its profit maximizing output at the price which it set (under profit maximization this occurs when marginal cost equals price). [2] He considered the case of strictly convex costs, where marginal cost is increasing in output.
A monopolist can set a price in excess of costs, making an economic profit. The above diagram shows a monopolist (only one firm in the market) that obtains a (monopoly) economic profit. An oligopoly usually has economic profit also, but operates in a market with more than just one firm (they must share available demand at the market price).
The maximization of producer surplus can in some cases reduce consumer surplus. [15] Some forms of producer profit maximization are considered anti-competitive practices and are regulated by competition law. [15] Maximization of short-term producer profit can reduce long-term producer profit, which can be exploited by predatory pricing such as ...
An oligopoly usually has "economic profit" also, but usually faces an industry/market with more than just one firm (they must share available demand at the market price). Economic profit is much more prevalent in uncompetitive markets such as in a perfect monopoly or oligopoly situation, where few substitutes exit.
Classical economic theory assumes that a profit-maximizing producer with some market power (either due to oligopoly or monopolistic competition) will set marginal costs equal to marginal revenue. This idea can be envisioned graphically by the intersection of an upward-sloping marginal cost curve and a downward-sloping marginal revenue curve ...
The monopoly model, already considered by marginalist economists, describes a profit maximizing capitalist facing a market demand curve with no competitors, who may practice price discrimination. Oligopoly is a market form in which a market or industry is dominated by a small
Market structure comparison; Market Structure Number of firms Market power Elasticity of demand Product differentiation Excess profits Efficiency Profit maximization condition Pricing power Perfect competition: Infinite None Perfectly elastic None Short term yes, long term no Yes [16] P=MR=MC [17] Price taker [17] Monopolistic competition Many Low