Oligopoly and public.

Minuses:

1. No allocative efficiency as Price>MC.

2. No productive efficiency.

3. Underproduction.

4. Overpricing.

5. Deadweight loss of welfare.

Pluses:

1. They are big =>they have resources to modernize production, R/D and innovate.

2. Competition is limited. Though encourages to innovate.

Monopolistic competition.

1. Major characteristics:

   1. Very many firms in an industry

   2. A firm can’t influence the price by means of its individual supply, it can influence price because:

   3. Product is differentiated

   4. The entry to the market is rather free

   5. Dem. curve for the product is sloping down, but it’s rather flat, as there are many rivals on the market.

!!! As the product is differentiated, it’s important to tell about it to customer by means of advertising.

2. SR equilibrium(!!! like in pure monopoly).

   1. MR = MC

   2. P > MR and MC  no allocative efficiency(! it takes place only under p. competition)

   3. If AC₁  AC_(av.costs) = OM  P >AC and TR > TC  ec. profit

      1. TR = OPKQ; TC = OMLQ; TП = PKLM.

   4. If AC₂  ec. losses.

   5. Conclusion: In the SR firm can earn ec. profit, suffer losses or earn normal profit(AC = P)

3. Lr equilibrium

   1. In the LR mon. competitive firm earns normal profit, because competition is pretty high and it eliminates LR ec. profit, loss and all the firms earn only economic profit.

   2. Ec. profit in the SR  in the LR new firms will enter the industry and the existing firms will expand  the dem. curve for a single firm becomes flatter as competition grows, until it toches the AC –curve(at the point of LR equilibrium).

      1. !!! This is not a min point of AC-curve, because the dem. curve doesn’t become horizontal.

   3. P>LRAC_min  no productive efficiency.

4. Minuses”-”.

   1. No allocative efficiency(P>MC)

   2. No productive efficiency(P>LRAC_min)

   3. Underproduction and overpricing

   4. Deadweight welfare loss and Waste of resources on advertising

5. Pluses”+”.

   1. High degree of competition

   2. Differentiation of the product helps to satisfy various human wants

   3. Firms have incentives to innovate

   4. There is practically no necessity in gov. regulation(as competition is close to perfect and all the negative outcomes are not great)

The theory of distribution of income(production and the dem. for ec. resources).