Part E | Sellers and market power
In Part A through Part D we've explored why we would want to coordinate and how to make coordination possible. Markets can organize economic activity efficiently in some contexts and fail in other contexts. But we've taken a simplified view of how buyers and sellers make decisions. Now we turn to a crucial question: What happens when sellers have market power? To understand this, we first need to examine how firms actually make production decisions. We'll start with the basics: how inputs become outputs, how this generates costs (ATC and MC), and how firms maximize profits (by setting MC = MR). This foundation will reveal how market power fundamentally changes firms' decisions and ultimately affects society's wellbeing.
Videos
... short videos that introduce the main ideas of the week.
Reading
... skim the reading to understand the main ideas before doing practice problems.
This looks like a lot of different ideas but they are all variations of the same problem. Each is important and interesting in its own right, but they all share the same core problem: how to maximize profit.
Vignettes
... small examples done in recitation practicing the concepts we cover in class.
Homework
... sets of problems you'll do with your study group.
MiniExam and Demo
You will begin to learn that if you understand the concepts and do the work in the Vignettes, Homework, and Demo, you're going to be in good shape on the MiniExam.
MiniExam E
... will be held on Wednesday November 20 and covers everything in Part E.
The Demos below were used in past semesters and are a resource for you to use as you'd like. But my advice is to start by trying to solve it on your own and only then use the video and solutions to check your work. You're more than welcome to watch this video first, but you're not going to catch your weak points as easily, which is the main point.