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Summary Econ 2014 Chapter 11
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Summary of 3 pages for the course Economics at SUN (Chapter 11)
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Onafhanklik van Stellenbosch Universiteit/ Independent of Stellenbosch University
Economics 214 summary: Microeconomics
Chapter 11: Imperfect competition
Dominant strategy:
Page | 1
Best strategy for a player regardless of what strategy the other player chooses.
Dominant strategy Equilibrium / Dominante Strategie-ewewig:
Uitkoms van `n spel waarin die firma sy beste doen ongeag die aksies van sy mededinger. (minstens een
speler speel sy dominante strategie in ewewig) / Outcome of a game in which each firm is doing the best it
can regardless of what its competitor is doing.(at least one player play his dominant strategy in
equilibrium)
Nash-equilibrium / Nash-ewewig:
Stel strategieë of aksies waarin elke firma sy beste doen gegewe die aksies van sy mededinger.
Kombinasie van stategieë sodat nie een van spelers insentief het om van strategie te verander nie./ Set of
strategies or actions in which each firm does the best it can given its competitor`s actions. Combination of
strategies that neither player have an incentive to change their strategy.
Cournot model:
Oligopoly model in which firms produce a homogenous good, each firm treats output of it`s competitors
as fixed, and all firms decide simultaneously how much to produce.
Choosing quantities:
Market demand: P = a – b(Q1 + Q2)
P1 = a – bQ2 – bQ1 TR1 = P*Q1 = [a – b(Q1 + Q2)]*Q1
MR1 = a – bQ2 – 2bQ1
if MC = 0
MR1 = MC → Q1 = (a – bQ2)/2b (reaction curve for firm 1) ……………(1)
Q2 = (a – bQ1)/2b (reaction curve for firm 2)………………………………(2)
Put (2) into (1) to solve the equilibrium quantity for firm 1 and then use the equilibrium quantity of firm 1
to calculate that of firm 2.
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