Chapter 16 or 17 (Oligopolies Review)

This chapter was relatively easy to understand. It dove into oligopolies, which is a form of imperfect competition. We briefly touched upon this the previous chapter so I kind of knew what was going on for the most part. The first 10 pages were very easy to understand, and the examples and charts the book gave helped me understand a bit more. I would give this chapter a 1.5/3


The definition of imperfect competition is that it has competitors but not so much that they are price takers. The book described two types of imperfect competition: oligopolies and monopolistic competition. A monopolistic competition is a market structure in which many firms sell products that are similar but not identical. This was what we learned in the previous chapter.  

Just like the book explained in the previous chapter we learned, there are within the four types of market structures, which are monopolies, oligopolies, monopolistic competition, and perfect competition. The type of market structure talked about in this chapter was oligopolies. An oligopoly is a market structure in which only a few sellers offer similar or identical products. 

Something interesting I found in the book is that economists measure a market’s domination using the concentration ratio, which is the percentage of total output in the market supplied by the four largest firms. Oligopolies tend to have high concentration ratios, which suits the definition of an oligopoly. The book begins to explain oligopolies by using the example of Jack and Jill and the control over water, a duopoly.

Also, the book has a nice way of achieving equilibrium for oligopolies, which is the Nash equilibrium. It explains further by explaining that the Nash equilibrium is a situation in which economic participants interacting with one another each chooses their best strategy given the strategies that all the others have chosen. 

Later in the book, they talked about game theory, which is the study of how people behave in strategic situations. An example of this game is the prisoners’ dilemma, which is a game between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial. 

Chapter 17 or 16 (Monopolistic Competition) review

Chapter 17 introduced the ideas of monopolistic competition, but the majority of the information in this book was just a reinforcement of things we previously learned. However, like always, understanding the graphs took longer than usual for me to comprehend completely. The chapter was easy to understand and I have no questions about it. I would give it a 1.5/3 in difficulty. 


The book starts with introducing monopolistic competition. Monopolistic competition is one of the four types of market structures. There are three main characteristics of a monopolistic competition: many sellers, product differentiation, and free entry. In the short run, a monopolistically competitive firm can operate with a profit or loss, or even zero economic profit. In the long run, a monopolistically competitive firm must operate at zero economic profit. 

Also, the book explains monopolistically competitive firmst in the long run and short run and talks about its equilibriums, which is  where the price must exceed the marginal cost. A monopolistically competitive firm wants to profit maximize, which is found in the intersection between the marginal cost and the marginal revenue.  In the long run, the demand curve must always be tangent to the average total cost curve. 

The book then explains the difference between a monopolistically competitive firm and perfect competition. The difference is that a monopolistic has excess capacity, while a perfectly competitive market drives firms to produce at the minimum of the ATC, not where the demand curve (which is tangent to the ATC curve) intersects the ATC curve. In order to produce at the efficient scale, the firm must be operating at the minimum of the ATC curve. A monopolistically competitive market loves getting another item sold because their price is over marginal cost. Therefore, they make profit all the time. At the same time, a perfectly competitive firm doesn’t care if it sells another item because profit from an extra unit sold is going to be zero. 

Chapter 15 Review

I thought this chapter was relatively easy compared to the previous chapter. This chapter is basically a continuation of the concepts of the previous chapter and that reinforced my knowledge in terms of marginal revenue, marginal costs, and average costs and how they affect the market.

Unlike the previous chapter where it talks about competitive markets, this chapter is about the concept of monopolies. In a monopoly, the firm is a price maker, not a price taker (perfectly competitive market) . A monopoly arises when a firm is able to produce a good that is differentiable from other goods or can produce a good at a lower cost. Monopolies produce at the quantity where marginal revenue equalscost and price is where the quantity rises to the demand curve.

Something interesting I found in the book was another type of monopoly, which is a government created monopoly. This monopoly arises when government restricts entry by giving a single firm the exclusive right to sell a particular good in certain markets. This chapter was relatively the same in difficulty as the previous chapter. An example of this would be patent and copyright laws.

Further into this chapter, it also discusses the price and output effect. The output effect is, as more goods are sold, profit increases. For price effect, as price falls, profit is lower. The financial compromise given the marginal cost of producing an additional unit gives a tantamount influence in the ins and outs of marketing firms.