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.

Chapter 14 review

This chapter was easier to understand than the previous one. I would give this a rating of 2/3 though because I had a more difficult experience with interpreting the graphs on marginal cost in the supply curve. However, the book explained well enough for me to understand it in the end. Also, something I found interesting in this chapter is the idea of sunk costs.

This chapter first introduces and expands on the concept of competitive markets. In a competitive market, the actions of any single buyer or seller in the market have a negligible impact on the market price. Buyers and sellers are at the mercy of the price, so they are called price takers.

Competitive markets' goals are to maximize profit. This chapter is talking about another way to interpret equilibrium price, as they said that this is done by producing at the quantity at which marginal cost equals marginal revenue. This is because marginal cost is the firm’s supply curve and this curve creates an equilibrium with the firm’s demand curve or the marginal revenue.

Also, competitive firms stay in the market even at zero-profit equilibrium because the total cost factored in include opportunity costs. This means they earn an accounting profit. In this chapter, they introduced the effects on short run and long run. In the short run, if a firm cannot recover its fixed costs, they will shut down. If in the long run, the firm operates below average total cost, the firm will exit the market. Also factored in its decision to exit, are sunk costs. Sunk costs are costs that have already been committed and cannot be recovered. A good example was the one that the book gave, which was about the $7 you lost for a movie ticket. It's long gone, no point in crying about it.

Chapter 13 review.

This chapter was one of the few chapters that I had more difficulty to understand. I would give this a rating of 2.5/3. After where the book talked about accounting profit and economic profit, the terms got more difficult to understand. I especially had trouble with interpreting the graphs and understanding the average and marginal costs. 

Chapter 13 first explains the concept of different costs to production with additional vocab words like explicit and implicit costs. Firms take into account a variety of costs in order to maximize economic profit, which is different from an accounting profit. Accounting profit simply subtracts explicit costs from total revenue whereas economic profit accounts for implicit costs or opportunity costs. This is why economic profit is always less than accounting profit. To help me understand implicit and explicit, I think of implicit as more than just money, and explicit as hard money statistics. This part was not as difficult

The chapter later discussed the marginal costs and the marginal product of producing another good along with a graph showing these costs, which includes variable cost and total cost. Average variable cost decreases over time and goes up in a u shape later on. I had trouble interpreting the graphs. 

Also, Average total cost does the same because marginal cost is smaller in the beginning and gradually becomes larger. Marginal product is the increase in the product produced for each new input. This number gradually decreases. Cost usually increases because of lack of space or material a firm has.  And to minimize cost, at the economy of scale (the lowest point of average total cost) is where firms produce at to maximize profit. 

Chapter 11 Review

This chapter is was relatively easy to understand but I had to look deeper in the "Excludable" and "Rival in Consumption" grid.  I would say that the overall difficulty was a 2/3.  I feel as if this chapter was a bit confusing to understand but the book explained it well with all the examples and case studies.

The chapter first introduces concepts such as excludable goods, which is the property of a good whereby a person can be prevented from using it, and rivalry in consumption, which is the property of a good whereby one person’s use diminishes other people’s use.

Then, the chapter talks about all the types of goods in the market. There are private and public goods, common resources, and goods produced by a natural monopoly. This chapter focuses on the public goods and common resources. Private goods are goods that are both excludable and rival in consumption while common resources are rival in consumption but not excludable. The examples that the book gives of each type of good are very helpful in understanding these terms.

The book introduces a problem with public goods, and a free rider, who is the person that receives the benefit of a good doesn't have to pay for it. The book uses a case study of fireworks as an example. If a small entrepreneur were to put on a show, there would be no incentive to pay because you could be a free rider, meaning there wouldn’t be an efficient outcome in the market. The government can solve this by taxing the people (only if the benefits of a public good exceed the cost) and use the tax revenue to pay for it, making the market more efficient.

An interesting idea introduced is the “Tragedy of the Commons,” which is a situation that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.

Chapter 10 review.

 I thought this chapter was relatively easy to understand and give it a difficulty rating of 2/3.  I did not have any problems with any part of the chapter, only had to look at the concept of corrective taxes a little deeper and the graphs There were lots of new terms that I needed time to process the information. 


This chapter first begins by reinforcing the concept of externalities. Externalities are when the social value or cost of a good is not equal to the equilibrium quantity and price. This was already introduced in the beginning of the book, and thus, not very hard to understand. Externalities happen when a transaction between private parties affects a bystander. An interesting example is when pollution creates a negative externality. 

The part where I had to look deeper into was when the socially optimum output is less than the equilibrium output. To reconcile this, the government can impose a tax for pollution to move the quantity produced to the socially optimal quantity. This is a form of corrective tax, or Pigovian tax.

Interestingly, another way the government may try to internalize the externality is to impose pollution regulations and give out pollution permits. This forces companies to reduce the amount of pollution they produce. If pollution permits are allowed to be sold however, a market will develop for them. Companies that can reduce pollution at a lower cost will sell them to companies that reduce pollution at a higher cost. There are also positive externalities. 

Another way externalities can be solved is through a concept called the Coase theorem. This is where the people are able to solve the problem themselves. In the book, there was an interesting example in where someone may pay another person so that their dog may stop barking if the cost to the dog owner is less than the price paid. Basically, the two parties can bargain with each other to solve thee extrenality problem. In a bigger view, if you there can't be a compromise, then the government has to step in.