Chapter 11 economics

Because firms are few in oligopolistic industries, each firm is a ______________ "; like the monopolist, it can set its price and output levels to maximize its profit.

"price maker

monopolistic competition, which is characterized by

1. a relatively large number of sellers, 2. differentiated products 3. easy entry to, and exit

two reasons, the monopolistic competitor's demand is not perfectly elastic like that of the pure competitor.

First, the monopolistic competitor has fewer rivals; second, its products are differentiated, so they are not perfect substitutes

_______________and the conditions surrounding the sale of a product are forms of product differentiation too.

Service

(large number of sellers) monopolistic competition involves:

Small market shares No collusion Independent action

Product differentiation may also be created through the use of ___________and trademarks, packaging, and celebrity connections.

brand names

So a monopolistic competitor will earn only a normal profit in the long run or, in other words, will only __________

break even.

(monopolistic competition) Compared with pure competition, this provides an advantage to the consumer

choice is greater So society benefits from better products.

The larger the number of rivals and the weaker the product differentiation, the greater the price elasticity of each seller's demand, that is, the ________ monopolistic competition will be to pure competition.

closer

Because of their "fewness," oligopolists have ___________ control over their prices, but each must consider the possible reaction of rivals to its own pricing, output, and advertising decisions.

considerable

Why? Because each firm has a smaller share of total ________ and now faces a larger number of close-substitute products.

demand

The price elasticity of demand faced by the monopolistically competitive firm _____________ on the number of rivals and the degree of product differentiation.

depends

So the firm can attempt to stay ahead of competitors and sustain its profit through further product ______________ and better advertising.

differentiation

High elasticity is precisely this feature that ___________ monopolistic competition from pure monopoly and pure competition

distinguishes

Despite the relatively large number of firms, monopolistic competitors ________ have some control over their product prices because of product differentiation.

do

The demand curve faced by a monopolistically competitive seller is highly, but not perfectly, _________

elastic.

In the long run, easy ____________ of firms cause monopolistic competitors to earn only a normal profit.

entry and exit

Economies of scale are important ________________ in a number of oligopolistic industries,

entry barriers

A monopolistic competitor's long-run equilibrium output is such that price the minimum average total cost (implying that consumers do not get the product at the lowest price attainable) and price exceeds marginal cost (indicating that resources are under-allocated to the product).

exceeds

In monopolistic competition, the gap between the mini- mum-ATC output and the profit-maximizing output identifies ___________

excess capacity

With the economic profit _________, there is no further incentive for additional firms to enter.

gone

merger has ____________ control over market supply and thus the price of its product.

greater

Indeed, monopolistic competitors must charge a _______-than-competitive price in the long run in order to achieve a normal profit.

higher

oligopoly, a market dominated by a few _________ producers of a homogeneous or differentiated product

large

As new firms enter, the demand curve faced by the typical firm shifts to the ____________

left (falls).

The goal of product differentiation and advertising—so-called non-price competition— is to make price _____________ in consumer purchases and make product differences a greater factor.

less of a factor

Because price P2 is __________ average total cost A2, the firm incurs a per-unit loss of A2 - P2 and a total loss represented as the red area [= (A2 - P2) * Q2].

less than

Products may also be differentiated through the ________and accessibility of the stores that sell them.

location

allocative Efficiency In monopolistic competition, neither productive nor allocative efficiency occurs in _______ equilibrium.

long-run

The efficiency ______________ associated with monopolistic competition is greatly muted by the benefits consumers receive from product variety.

loss (or deadweight loss)

In the short run, a monopolistic competitor will maximize profit or minimize loss by producing that output at which ____________________ equals marginal cost.

marginal revenue

The merging, or combining, of two or more competing firms may substantially increase their ______________, and this in turn may allow the new firm to achieve greater economies of scale.

market share

Some oligopolies have emerged mainly through the growth of the dominant firms in a given industry But for other industries the route to oligopoly has been through __________

merger

Monopolistic competition involves a relatively large number of firms operating in a ____________ way and producing differentiated products with easy industry entry and exit.

non-collusive

These differentiated oligopolies typically engage in considerable ____________ competition supported by heavy advertising.

non-price

Their losses will disappear and give way to _________

normal profits

But because rivals are few, there is mutual interdependence: a situation in which each firm's profit depends ________________ on its own price and sales strategies but also on those of the other firms.

not entirely

Generally, however, when you hear a term such as "Big Three," "Big Four," or "Big Six," you can be sure it refers to an ___________________ industry.

oligopolistic

A concentration ratio reveals the percentage of total _____________ produced and sold by an industry's largest firms.

output

The monopolistically competitive firm maximizes its profit or minimizes its loss in the short run just as do the other firms we have discussed: by ______________ the output at which marginal revenue equals marginal cost (MR = MC).

producing

They produce products with slightly different physical characteristics, offer varying degrees of customer service, provide varying amounts of locational convenience, or pro- claim special qualities, real or imagined, for their products.

product differentiation

. The good is being produced in the least costly way, and the price is just sufficient to cover average total cost, including a normal profit.

productive efficiency

If successful in advertising the firm's demand curve will shift to the ______ and will become less elastic.

right

some firms will exit in the long run. Faced with fewer substitute products and blessed with an expanded share of total demand, the surviving firms will see their demand curves shift to the _______

right (rise)

But unlike the monopolist, which has no rivals, the oligopolist must consider how its _________will react to any change in its price, output, product characteristics, or advertising.

rivals

the greater the product differentiation, the more likely the firms will __________ the great diversity of consumer tastes.

satisfy

Because monopolistic competitors are typically _______ firms, both absolutely and relatively, economies of scale are few and capital requirements are low

small

_____________, we simply mean self-interested behavior that takes into account the reactions of others.

strategic behavior