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HomeHomework HelpeconomicsMonopoly and Game Theory

Monopoly and Game Theory

This topic explores the concepts of monopoly and game theory through a case study of Gary's Gym, a firm that maximizes profits while holding a patent on a unique exercise device. Key calculations include determining total revenue at allocative efficiency, which occurs when price equals marginal cost, and analyzing price elasticity to understand how price changes affect quantity demanded. This analysis is significant in Economics as it illustrates strategic decision-making in competitive environments and the implications of market power.

intermediate
3 hours
Economics
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Overview

Monopoly and game theory are crucial concepts in economics that help us understand market dynamics and strategic decision-making. A monopoly occurs when a single seller dominates a market, allowing them to control prices and supply, often leading to inefficiencies and consumer exploitation. Game the...

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Key Terms

Monopoly
A market structure where a single seller controls the entire market.

Example: A local utility company that provides water to a city.

Game Theory
The study of strategic decision-making among rational agents.

Example: Analyzing how companies compete in pricing.

Nash Equilibrium
A situation where no player can benefit by changing their strategy while others keep theirs unchanged.

Example: Two firms setting prices where neither can increase profit by changing their price alone.

Market Power
The ability of a firm to influence the price of a good or service.

Example: A pharmaceutical company controlling the price of a patented drug.

Payoff Matrix
A table that describes the payoffs in a strategic interaction.

Example: A matrix showing profits for two competing firms based on their pricing strategies.

Consumer Surplus
The difference between what consumers are willing to pay and what they actually pay.

Example: Buying a concert ticket for $50 when you would pay $80.

Related Topics

Oligopoly
A market structure with a few firms dominating the market, leading to strategic interactions.
intermediate
Perfect Competition
A market structure where many firms compete, leading to optimal resource allocation.
intermediate
Behavioral Economics
The study of psychological factors affecting economic decision-making.
advanced
Regulatory Economics
The study of how regulations affect market structures and economic outcomes.
advanced

Key Concepts

Market PowerNash EquilibriumPayoff MatrixDominant Strategy