Chapter 17: Oligopolies

Chapter 17 is all about oligopolies and the certain characteristics this market has compared to monopolies and perfect competitive market. As mentioned before, oligopolies are more similar to monopolies since a small group of firms controls 50 or more percent of the market. In addition, the price is always above marginal revenue, except over a period of time when more sellers enter the market. When more sellers enter the market, the price gets closer to marginal cost and the socially optimal quantity is produced, turning the market into a competitive market. A major problem that occurs with oligopolies is that cartels can be formed, producing a form of cheating. A firm is able to cheat the other seller in the compromise due to self-interest and the incentive provided. A good way at looking at these situations is through the idea of a mind-game.  The game being described is similar to choosing the dominant or most self-interested option. The game can be figured out through the charts presented in the books. 

Chapter 15: Monopoly

Chapter 15 is all about monopolies and their impact on the market and the economy. For starters, monopolies are not price takers, they are price makers. Since monopolies control a the main supply of a particular good, they are able to change the price of the good in order to maximize their own profit. In order for a market to be considered a monopoly, they must have a key resource owned by a single firm, the government gives a single firm the exclusive right to produce some goof or service, and the costs of production make a single producer more efficient than a large number of producers. In addition, when discussing the types of goods in a market in a previous chapter, government created monopolies are called natural monopolies. Natural monopolies included services such as water or electrical supply since the cost of a single firm to produce for the entire demand is less expensive for the consumers than having two or more supply firms.  It is also crucial to remember that that for a monopoly firm, the price must be greater that than the marginal cost and the marginal revenue, and that the profit created by monopolies create a deadweight loss. The government has some ways to control the power of a monopoly such as increasing competition, regulation, turning companies into public enterprises, or by simply doing nothing at all. By doing so, the monopoly will still have power but not too much and that will reduce the price discrimination. Overall, I think it was a long chapter to read and I would give it a rating of 2. I would however like a better understanding of the graphs.

Chapter 14: Firms in Competitive Markets

In Chapter 14, the costs and total revenue discussed in the previous chapter are applied on firms in competitive markets in order to maximize profits. For the market to be defined as competitive, there should be many buyers/sellers who are price takers, the goods are largely the same, and firms can enter or exit the market. A good example the book used was the Smith Family Dairy Farm and their production of milk. For the firms to maximize their profits, the marginal revenue and  the marginal cost should be exactly equal. If the marginal revenue is greater than the cost, the firm should keep on producing more but if the marginal revenue is less than the cost, they should decrease production. Also, the marginal revenue is the price of the good. It is also crucial to know that the marginal cost curve is the supply curve for the competitive market firms. In addition, the chapter discussed how to determine when a firm should exit or shut down their production in terms of price and the average variable cost (AVC). If the price is less than the AVC, then the firm should shut down. A sunk cost is the cost that has already been committed and cannot be recovered, such as the cost of land (a fixed cost). Overall, I understood the general concept of it but I found the charts to be rather confusing. I would rate this chapter a 2 since I really understood the first half of the chapter but the second confused quite a bit.