1.5 Theory of the Firm
Tutor2u Webinars
IB Specific Playlists
Teaching Notes
The Nature of the Firm
Types of Ownership
Sole Trader - Partnership
Private Limited Company (Ltd) - Public Limited Company (Plc)
Structure Conduct Performance
Costs in the Short Run
Lesson Summary
Costs in Long Run
productive efficiency and economies of scale
united biscuits production line
big is back article (economist aug 2009)
Perfect Competition
Monopolistic Competition
Monopoly
Assumptions of the model
Describe, using examples, the assumed characteristics of an oligopoly: the dominance of the industry by a small number of firms; the importance of interdependence; differentiated or homogeneous products; high barriers to entry.
• Explain why interdependence is responsible for the dilemma faced by oligopolistic firms— whether to compete or to collude.
• Explain how a concentration ratio may be used to identify an oligopoly.
Non-collusive oligopoly
• Explain that the behaviour of firms in a non-collusive oligopoly is strategic in order to take account of possible actions by rivals.
• Explain, using a diagram, the existence of price rigidities, with reference to the kinked demand curve.
• Explain why non-price competition is common in oligopolistic markets, with reference to the risk of price wars. • Describe, using examples, types of non-price competition.
Open/formal collusion
• Explain the term “collusion”, give examples, and state that it is usually (in most countries) illegal.
• Explain the term “cartel”.
• Explain that the primary goal of a cartel is to limit competition between member firms and to maximize joint profits as if the firms were collectively a monopoly.
• Explain the incentive of cartel members to cheat. • Analyse the conditions that make cartel structures difficult to maintain.
Tacit/informal collusion
Describe the term “tacit collusion”, including reference to price leadership by a dominant firm.
Joint Profit Maximisation
Cartel Case Studies
Competition Policy Case Studies
Game Theory
Explain how game theory (the simple prisoner’s dilemma) can illustrate strategic interdependence and the options available to oligopolies.
Related Links:
http://game-theory-class.org/
https://www.youtube.com/user/gametheoryonline
http://www.economist.com/blogs/gametheory
Game Theory in the Movies
War Games (1983)
A Beautiful Mind (2001)
Dr Strangelove (1964)
Prisoners Dilema? Goldenballs
Price Discrimination
t2u notes paj holden video
price discrimination presentation
price discrimination worksheet
First Degree - Personalised Pricing
Second Degree - Fixed Capacity
Third Degree - Elasticity Based (Focus for IB)
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