Economies of Scale and Imperfect Competition

How can large companies afford to lower the price of goods in a competitive market? A company's ability to raise its price without losing its entire market is an example of market power. One of the most important of these is economies of scale.

Post a 250- to 300-word statement that addresses the following:

• How do companies develop economies of scale?
• Why do economies of scale often result in monopolistic or oligopolistic markets?
• Explain the role of government in regulating these monopolies or oligopolies?

Read a selection of your colleagues' postings.

Respond by Day 6 to two or more of your colleagues' postings in one or more of the following ways:

• Ask a probing question.
• Share an insight from having read your colleague's posting.
• Offer and support an opinion.
• Make a suggestion.
• Expand on your colleague's posting

Return to this Discussion in a few days to read the responses to your initial posting. Note what you learned and the insights you gained as a result of the comments your colleagues made.

Be sure to support your work with specific citations from the Learning Resources and any additional sources.

Required Resources

Readings

• Frank, R. H., & Bernanke, B. S. (2010). Principles of microeconomics, brief edition (2nd ed.). New York, NY:McGraw-Hill/Irwin.

o Chapter 7, "Monopoly, Oligopoly, and Monopolistic Competition" (pp. 191-221)

Chapter 7 introduces the three types of imperfectly competitive industries: monopoly, oligopoly, and monopolistic competition. The chapter also explains imperfect competition and describes how it differs from perfect competition.

Focus on the forms of imperfect competition, such as monopolistic competition and oligopoly. Focus on the five sources of market power.

o Chapter 8, "Games and Strategic Behavior" (pp. 225-252)

Chapter 8 focuses on the situations in which people in the competitive business are required to consider the implications of their behaviors on others. This chapter explains how competitive firms decide on the prices of their products or services, after considering the responses of their rivals.

Focus on the game theory to analyze strategic decisions. Review games such as the prisoner's dilemma and the repeated prisoner's dilemma.

Media

• Kahn Academy. (2014o). Perfect competition [Video file]. Retrieved fromhttps://www.khanacademy.org/economics-finance-domain/microeconomics/perfect-competition-topic/perfect-competition/v/perfect-competition

Note: The approximate length of this media piece is 10 minutes.

• Kahn Academy. (2014l). Monopoly basics [Video file]. Retrieved fromhttps://www.khanacademy.org/economics-finance-domain/microeconomics/perfect-competition-topic/monopolies-tutorial/v/monopoly-basics

Note: The approximate length of this media piece is 6 minutes.

• Kahn Academy. (2014n). Oligopolies and monopolistic competition [Video file]. Retrieved fromhttps://www.khanacademy.org/economics-finance-domain/microeconomics/perfect-competition-topic/monopolistic-competition-oligop/v/oligopolies-and-monopolisitc-competition

Note: The approximate length of this media piece is 9 minutes 30 seconds.

• Kahn Academy. (2014q). Prisoner's Dilemma and Nash Equilibrium [Video file]. Retrieved fromhttps://www.khanacademy.org/economics-finance-domain/microeconomics/nash-equilibrium-tutorial/nash-eq-tutorial/v/prisoners--dilemma-and-nash-equilibrium

Note: The approximate length of this media piece is 9 minutes 30 seconds.

Optional Resources

• Frank, R. H., & Bernanke, B. S. (2011). Principles of microeconomics, brief edition (2nd ed.) [Supplemental material]. Retrieved from http://highered.mheducation.com/sites/0077316770/student_view0/index.html