Econ Module 23: Intro to Market Structure

Because of the lack of substitutes, the market for a newly developed and freshly patented prescription drug is BEST considered to be: - In perfect competition. - In monopolistic competition. - An oligopoly. - A monopoly.

A monopoly

A feature of monopolistic competition that makes it different from monopoly is the: - Fact that firms in monopolistically competitive industries follow the - Marginal decision rule, while monopolies do not. - Downward-sloping demand curve. - Downward-sloping marginal revenue curve. number of firms in the industry.

Number of firms in the industry

Which statement describes a monopoly? - Many firms produce identical products with no control over the market price. - Many firms produce differentiated products with control over market price. - A single firm produces a product with no close substitutes and control over the market price. - A single firm produces a product with many close substitutes and limited control over the market price.

- A single firm produces a product with no close substitutes and control over the market price.

Match each example to the market structure it is most likely to belong to. (Monopolistic competition, Oligopoly, Monopoly, Perfect pure competition) - Carl's Taco truck (one of many on Food Trailer Lane) - Nissan - US Steel - Newly patented drug - Ruby's Shoesday (shoe store) - Verizon competing in the Amazon cell phone market - Exclusive electricity supplier

- Pure perfect competition: Daisy's Corn Farm & Wheat farms inc - Monopolistic competition: Carl's Taco truck (one of many on Food Trailer Lane) & Ruby's shoesday, a shoe store - Oligopoly: Nissan, US Steel & Verizon competing in the Amazon cell phone market - Monopoly: A newly patented drug & an exclusive electricity supplier

Identify the market structure that most accurately describes the context in which each good or service is sold. (Monopolistic competition, Oligopoly, Monopoly, Perfect pure competition) - Retail clothing - Commercial airline manufacturing - High quality potatoes - Locally regulated sewage disposal - Intercity railways - The automobile industry

- Pure perfect competition: High quality potatoes - Monopolistic competition: Retail clothing - Oligopoly: Commercial airline manufacturing & The automobile industry - Monopoly: Intercity railways & Locally regulated sewage disposal

Classify each statement about types of market structure as either true or false. 1. Monopolies produce differentiated products 2. Monopolistic competition is a market structure that consists of a small number of producers. 3. Perfect (pure) competition is characterized by product differentiation 4. Oligopolies exist in a market that has a small number of producers that may or may not exhibit product differentiation.

1, 2, 3 = FALSE 4 = True

The Herfindahl-Hirschman index equals _____ when _____ have/has _____% of the market. - 10,000; four firms each; 25 - 5,000; three firms each; 33 - 5,000; two firms each; 50 - 100,000; one firm; 100

5,000; two firms each; 50

What is a natural monopoly? - A monopoly resulting from one firm's exclusive ownership of a natural resource required to produce a good - A market in which there is only one firm - A monopoly that results from government issuing patents - A monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors

A monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors

If all firms in an industry are price takers: - Each firm can sell at the price it wants to charge, provided it is not too different from the prices other firms are charging. - Each firm takes the market price as given for its output level, recognizing that the price will change if it alters its output significantly. - An individual firm cannot alter the market price even if it doubles its output. - The market sets the price, and each firm can take it or leave it by setting a different price.

An individual firm cannot alter the market price even if it doubles its output.

Classify the assumptions according to whether or not each item is an assumption made under perfect competition (also known as pure competition or competitive industry). A: Price taking behavior B: A Small number of producers C: Significant barriers to entry D: Firms selling similar but differentiated goods

Assumed in perfect competition: A Not assumed: BCD

_____ almost always take the market price as given; that is, they are considered _____. However, this is often not true of _____. - Consumers; quantity minimizers; producers - Producers; quantity takers; consumers - Consumers and producers; price takers; firms that produce a differentiated product - Producers; price searchers; consumers

Consumers and producers; price takers; firms that produce a differentiated product

For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is _____, and there are _____ producers of seafood. - Downward sloping; few - Upward sloping; many - Vertical; few - Downward sloping; many

Downward sloping, many

When a firm finds that its ATC of production decreases as it increases production, this firm is said to be experiencing: - Profit maximization. - Economic profit. - Economies of scale. - A barrier to entry.

Economies of scale

Monopolies and monopolistically competitive firms differ in that monopolies... - Differentiate their products. - Face competition from many other firms. - Participate in markets where barriers to entry are present.

Participate in markets where barriers to entry are present.

A perfectly competitive firm is a: - Price taker. - Price searcher. - Cost maximizer. - Quantity taker.

Price taker

Oligopoly is a market structure that is characterized by a _____ number of _____ firms that produce _____ products. - Large; relatively small and independent; identical - Small; independent; identical or differentiated - Large; relatively small and independent; differentiated - Small; interdependent; identical or differentiated

Small; interdependent; identical or differentiated

Market structures are categorized by: - The number and size of the firms. - Whether products are differentiated and the extent of advertising. - The number of firms and whether products are differentiated. - The size of the firms and the extent of advertising.

The number of firms and whether products are differentiated.

Which scenario is an example of an industry in monopolistic competition? - The local gas company owns all of the gas lines that supply natural gas and heating to the residents in the townof Madison, Wisconsin. - Sprint, AT&T, Verizon, and T-Mobile own a large portion of the U.S. cellular market share. - Within walking distance from your home, there are a plethora of fast-food restaurants including Koala Express,Cabo Bob's Burritos, Oodles of Noodles, and Hanz's Hearty Hamburgers. - Farmers grow navel oranges throughout the United States.

Within walking distance from your home, there are a plethora of fast-food restaurants including Koala Express,Cabo Bob's Burritos, Oodles of Noodles, and Hanz's Hearty Hamburgers.

Determine if each example represents a barrier to entry or not. a. Pfizer is the only firm that is legally allowed to produce and sell Lipitor, a best‑selling cholesterol drug. b. DeBeers owns nearly all of the world's diamond mines c. Boeing already serves a large fraction of the jumbo jet market and is able to produce at a lower average cost than any potential competitors. d. Tinseltown Theaters shows almost all the most popular newly‑released movies.

a, b, c = Barrier to entry d = Not a barrier to entry

Indicate whether each item is associated with network externalities or not. a. a Facebook account b. steel production, which results in air pollution c. operating systems, such as Windows or Mac d. a power strip e. plastic grocery bags

a, c = Associated with network externalities b, d, e = Not associated with network externalities

Which of the following makes monopolistic competition different than perfect competition? Monopolistically competitive firms - Differentiate their products - Face competition from many other firms - Participate in markets where barriers to entry are present

differentiate their products

In comparison to oligopolies, firms in monopolistic competition - Differentiate their products. - Face competition from many other firms. - Participate in markets where barriers to entry are present.

face competition from many other firms.

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as: - Product differentiation. - Barrier to entry. - Market power. - Patents and copyrights.

Market power

Industries that are made up of many competing producers, each selling a differentiated product, and whose firms earn zero economic profits in the long run are: - Perfectly competitive. - Monopolies. - Oligopolies. - Monopolistically competitive.

Monopolistically competitive.

Which firm is most likely to be a natural monopoly? - Municipal Power Light, the local supplier of electricity - A pharmaceutical company that has the exclusive right to sell a patented drug - A restaurant that is unable to practice price discrimination and must charge all consumers the same price - A firm that owns nearly all the diamond mines in the world

Municipal Power Light, the local supplier of electricity