Chapter 17

Chapter 17 goes over oligopolies. An oligopoly is when there are only a few sellers for an entire market. Because of this oligopolies can have a huge affect on other seller's profits in the market depending on how much they produce. The simplest form of an oligopoly is a duopoly. In an  which contains two firms. Oligopolies can reach maximum profit if they cooperate with the other firms. This is called collusion and firms that do this are part of a cartel. However there are laws in place to stop most colluding. Since many firms cannot cooperate they compete to best each other, but this end up bringing the firms to a Nash Equilibrium where the firms will not increase production anymore because they will lose profits. If the firms cooperated they would've been able to gain much more profit. With this competition of firms game theory is introduced and the example of the prisoner dilemma is discussed.

Chapter 16

In chapter 14 we went over perfectly competitive markets. In Chapter 15 we went over monopolies. This chapter mixes the two together and goes over monopolistic competition. Monopolistic competition is when may firms sell a product that is not identical, but similar. This means that they still have market power and their demand curve is downward sloping. However since they are in a competitive market the firms are still affected by other firms exiting and leaving. The price is still set above marginal cost so the firms still earn a profit and produce a deadweight loss. Also since the firms can earn a profit they spend money on advertising to attract new consumers.

Chapter 15

Last chapter we talked about how firm behave in a competitive market. In a competitive market none of the firms had market power and they were all price takers meaning they had to take the price that the market had set. This chapter talks about monopoly or firms that have market power meaning they are mostly or completely the market. They are the only or one of the only firms selling a certain good or service. Since they have such market power they can set the price. To maximize profits monopolies will set their price somewhere above the average total cost line. A monopoly can happen in there different situations; a firm can have access to all of a certain resource allowing them to sell they're good or service, a firm can have a natural monopoly in which it is most cost effective if only one firm sells a good or service, and lastly if a company is given a patent by the government making that firm the only one to sell a certain good or service. A firm maximizes profit by finding the quantity supplied which is where marginal cost and revenue meet. Then finding where that quantity is on the market demand curve is where the price is found that maximizes profit.