Monopolistic competition and Oligopoly questions

Monopolistic competition page 118

Productively efficient is the point where the cost is minimized. This is at MC = AC (Q2). Allocative efficiency is the social optimum point, where MC = MR (Q3). All firms wish to maximize their profits so they will produce at MC = MR (Q1). As seen on the graph, the firm is producing at Q1 so there for it cannot be allocatively efficient or productively efficient if it is not producing at Q2 or Q3.

Oligopoly page 125

When firms are non-collusive they do not agree on a price to sell. This is an advantage to consumers because the price will be lower and more will be produced opposed to a collusive oligopoly. Since changing their price will have drastic changes in demand firms need to be aware of the reaction of other firms. If an oligopoly, that is non-collusive, raises the price and the other oligopoly doesn't it, will lose consumers and thus revenues and finally profits. If, on the other hand, a firm lowers its price, then the firm will receive more profits. Other firms will follow but undercut the price to make up for lost profits. This will result in a "price war" and the price of a good will keep decreasing until at one point the firm will be selling it at a loss. The price thus remains stable in a non-collusive oligopoly market because the price cannot change without erupting into a "price war" or a loss of profits.