Profit Maximization for a Monopolistic Competitor (c) Figure 6.9, Page 140
Quantity of Meals per Day 0 200 $ per Meal 8.00 10.00 Short-Run Profit Maximization
For Jaded Palate 0 150 Quantity of Meals per Day $ per Meal 7.50 Long-Run Profit Maximization
For Jaded Palate MC AC D1 MR minimum point
of AC MC AC D0 MR a b c d e
Revenue Conditions for an Oligopolist
An oligopolist in a market characterized by rivalry has average revenue identical with its kinked demand curve
This business’s marginal revenue curve has two linear segments which are below its kinked demand curve
Profit-Maximization for an Oligopolist (a)
The profit-maximizing quantity for this type of oligipolist is found where marginal revenue and marginal cost are equal. Price is found using the business’s kinked demand curve.
The oligopolist meets neither the minimum-cost pricing nor the marginal-cost pricing rules.
Profit Maximization for an Oligopolist (b) Figure 6.10, Page 141
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$35
30
20
10 0
10
20
25
30 0
350
600
500
300 35
25
-20
-40 AC MC Profit Maximization Table for Centaur Cars Quantity
(Q)
(thousands of cars per year) Price
(P)
(=AR)
($ thousands
Per car) Total
Revenue
(TR)
(P x Q)
($ millions) Marginal
Revenue
(MR)
(ΔTR/ΔQ)
($ thousands
per car) Marginal
Cost
(MC)
($ thousands
per car) Average
Cost
(AC)
($ thousands
per car) 15
10
15
25 30
20
19
20 0 10 20 30 Quantity (thousands of cars per year) Profit Maximization Graph for Centaur Cars $ Thousands per car 10 20 30 40 -20 -10 -40 -30 D MR a b c Profit = $200 million
Anti-Combines Legislation (a)
Anti-combines legislation represents laws aimed at preventing industrial concentration and abuses of market power.
The Competition Act of 1986 was a major reform of Canada’s anti-combines legislation.
Anti-Combines Legislation (b)
Criminal offences under the Competition Act, include:
Conspiracy
Bid-rigging
Predatory Pricing
Abuse of Dominant Position
Anti-Combines Legislation (c)
Civil matters reviewed by the Competition Tribunal include:
Abuse of Dominant Position
Mergers
Horizontal merger
Vertical merger
Conglomerate merger
Nonprice Competition
Nonprice competition is used by monopolistic competitors and oligopolists
product differentiation
advertising
Nonprice competition raises a business’s revenue and costs
Nonprice competition may or may not be beneficial to businesses and consumers
Industrial Concentration
Industrial concentration refers to market domination by a few large businesses.
It can provide the consumer with benefits due to increasing returns to scale.
It can impose costs on the consumer due to market power.
It may or may not encourage technical innovation.
Concentration Ratios
Industrial concentration is measured using concentration ratios.
The four-firm concentration ratio shows the percentage of total sales revenue in a market earned by the four largest business firms.
Concentration ratios overestimate competition in localized markets and underestimate it in global markets.
Concentration Ratios in Selected Canadian Industries (1988) Figure 6.11, Page 148
Tobacco products
Petroleum and coal products
Transportation
Beverages
Metal mining
Paper and allied industries
Electrical products
Printing, publishing, and allied industries
Food
Finance
Machinery
Retail trade
Clothing industries
Construction Share of Industry Sales
by Four Largest Businesses
98.9
74.5
68.5
59.2
58.9
38.9
32.1
25.7
19.6
16.4
11.3
9.7
6.6
2.2
Concentration in the Canadian Economy (1999) Figure 6.12, Page 149
Foreign
Canadian Assets
$18.9
57.8
76.7 Revenues
$26.2
30.5
56.7 Share of Assets and Share of Revenues for Enterprises with $75 million or More in Revenues
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