Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

244 PRICE AND OUTPUT UNDER MONOPOLISTIC COMPETITION AND OLIGOPOLY [CHAP. 10
400 units supplied by all the small firms at this price (point G) gives the quantity of 200 units that the dominant firm can sell
at the price of $6 (point H on the d curve). Other points on the d curve can be obtained in the same way.
Fig. 10-8
From the dominant firm’s demand curve d, we can derive its marginal revenue curve, mr d . If the dominant firm’s shortrun
marginal cost curve is given by SMC d , the dominant firm will set its profit-maximizing price of $6 (given by point E,
where mr d ¼ SMC d ) as the industry price. At this price, all the small firms together sell 400 units. Then the dominant firm
comes in to fill the market by selling its profit-maximizing output of 200 units, at the market price of $6 that it set.
10.12 LONG-RUN EQUILIBRIUM UNDER OLIGOPOLY
Most of our analysis of oligopoly has so far referred to the short run. In the short run, an oligopolist, just as
any other firm under any other form of market organization, can make a profit, break even, or incur a loss. In the
long run, the oligopolistic firm will leave the industry unless it can make a profit (or at least break even) by
constructing the best scale of plant to produce the anticipated best long-run level of output. If profits are
being made, firms may seek to enter the oligopolistic industry in the long run, and unless entry is blocked
or at least restricted, the industry may not remain oligopolistic in the long run. (For the long-run efficiency
implications of oligopoly, see Problems 10.22 and 10.23.)
Glossary
Bertrand model The premise of this model of oligopoly is that each oligopolistic firm, in attempting to maximize its
profits (or TR if TC ¼ 0), assumes that the other firm holds its price constant.
Cartel A formal organization of producers within an oligopolistic industry that determines policies for all firms in the
cartel, with a view to increasing total profits for the cartel.
Centralized cartel A cartel that makes all decisions for the member firms, leading to the monopoly solution.
Chamberlin model It is similar to the Cournot model except that the two oligopolists recognize their interdependence
and maximize their joint profits.
Cournot model The premise of this model of oligopoly is that each oligopolistic firm, in attempting to maximize its total
profits (or TR if TC ¼ 0), assumes that the other firm holds its output constant.