monopolistic competition videos

The strategy of distinguishing one firm's product from the competing products of other firms is called product ---

differentiation

deadweight loss

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium.

Which of the following is true of cartels?

They reduce uncertainty and maximize profits for firms.

Why is deadweight loss present in an oligopoly market?

Because oligopolies charge a higher price than would be charged under perfect competition.

As explained in the video, in which of the following circumstances might price leadership benefit a dominant firm?

either to prevent entry by new firms into the industry or as a response to higher input prices facing the entire industry

Monopolistically competitive firms are neither allocatively efficient nor

productively efficient in the long run

kinked demand model

A model where noncollusive oligopolistic firms ignore other firms' price increases but match their price decreases, a process that results in a kink on the demand curve faced by each firm operating in the market.

mutual interdependence

A situation in which a change in the strategy followed by one producer will likely affect the sales, profits, and behavior of another producer.

market share

the percentage of total market sales accruing to one specific firm.

Price leadership refers to

the practice of the dominant firm signaling price changes.

The level of profit that occurs when the total revenue is less than the total cost is known as a(n) ---

loss

Use the graph of a monopolistically competitive firm above to answer the following question. What is the amount of profit or less Monica will make at the profit maximizing price and quantity?

profit $2000 The price here is $160, and the quantity is 40. At this quantity, the ATC is $110. The profit per unit is equal to the price minus the ATC, or $50. The entire profit is ($50)(40) = $2,000). Profit = (P −ATC)*q = (160 − 110)*40 = $2,000

When the marginal benefit of the last unit equals the marginal cost of the last unit, production is

allocative efficient

Producing output at the lowest possible total cost of production per unit is

productive efficiency

When there is production efficiency,:

- output is produced using the fewest resources possible to produce a good or a service. - output is produced at the lowest possible total cost per unit of production.

Referring to the graph, the profit or loss amount for Sandra's Sweets at the profit maximizing output and price is $

-1280

A market is dominated by five firms, each with an equal share of market sales. What is the Herfindahl-Hirschman Index for this market?

2,000

As explained in the video, which of the statements below best explains why a kinked demand curve may exist in the market faced by retail coffee shops?

A coffee shop will match a price decrease from its competitors, but not a price increase.

herfindahl-hirschman index (HHI)

A concentration index that measures the sum of the squared percentage of sales from all firms in a particular industry. HHI = (S1%)^2 + (S2%)^2 + ... + (Sn%)^2

Four-Firm Concentration Ratio (CR4)

A concentration ratio that measures the percentage of sales by the four largest firms in a particular industry. Four-firm concentration ratio = sales of four largest firms / total sales of industry x 100

demand curve

A graphical representation of the relationship between the price of a good, service, or resource and the quantities consumers are willing and able to buy over a fixed time period, all else held constant.

Which of the following describes a cartel?

A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices - manipulate output - or restrict competition.

cartel

A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition.

oligopoly

A market structure characterized by a few large producers, of either standardized or differentiated products, operating in industries with extensive entry barriers. These producers are price makers and behave strategically when making decisions related to the features, prices, and advertising of their products.

monopolistic competition

A market structure characterized by a relatively large number of sellers producing a differentiated product, for which they have some control over the price they charge, in a market with relatively easy market entry and exit.

monopoly

A market structure characterized by a single seller, producing a good or service for which there are no close substitutes, in a market with relatively blocked entry. A monopoly is a price maker.

price leadership

A practice used by the dominant firm in a noncollusive oligopolistic market to signal price changes.

collusion

A situation in which decision makers coordinate their actions to achieve a desired outcome. Collusion is generally used to achieve an outcome that would not be possible in the absence of coordinated actions, and it is typically associated with illegal or anticompetitive behaviors. If two large airline companies decide to coordinate their pricing strategies so they can charge higher-priced fares than they would if they were acting independently and competing with one another to offer low-price fares to their customers, there is collusion between the airline companies.

federal trade commission Act (1914)

An antitrust law that made "unfair methods of competition" and "unfair or deceptive acts or practices" illegal.

clayton act (1914)

An antitrust law that prohibits mergers that would substantially lessen competition or create a monopoly, as well as some specific business practices such as tying contracts.

Two corporations are planning a merger. The merged company would control 90 percent of the market. This merger would likely be blocked due to provisions in the:

Clayton Act.

antitrust laws

Laws designed to prevent firms from engaging in behaviors that would lessen competition in a market.

Allocative efficiency occurs when:

MB = MC

productive eficiency

Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service.

allocative efficiency

Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost.

marginal revenue (MR)

The change in a firm's total revenue that results from a one-unit change in output produced and sold.

sherman Act (1890)

The first antitrust law enacted in the United States, which made "every contract, combination, or conspiracy in restraint of trade" illegal.

normal profit

The level of profit that occurs when total revenue is equal to total cost. This level indicates that a firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or compete in a different industry. Normal profit is also known as zero economic profit.

economic profit

The level of profit that occurs when total revenue is greater than total cost.

loss

The level of profit that occurs when total revenue is less than total cost. Last year, Dave's Furnace Repair, Inc., earned a total revenue of $330,200 but, due to increased health care costs, faced a total cost of $392,000, for a loss of $61,800.

limit pricing

The practice used by the dominant firm in a noncollusive oligopolistic market to prevent the entry of new firms by establishing a price lower than the short-run profit-maximizing price.

product differentiation

The strategy of distinguishing one firm's product from the competing products of other firms.

excess capacity

The underutilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes average total cost. Because the market for running shoes is monopolistically competitive and the infrastructure necessary for operating a company in that market is relatively expensive, running shoe companies are most likely going to have excess capacity; that is, they are not going to produce enough running shoes to reach the minimum average total cost of production.

The four-firm concentration ratio is:

a concentration ratio that measures the percentage of sales by the four largest firms in a particular industry

--- efficiency is producing the goods and services that consumers most want in such a way that the marginal benefit equals the marginal cost.

allocative

The underutilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes the average total cost is called excess ---

capacity

A market structure characterized by a relatively large number of sellers producing a differentiated product - for which they have some control over the price they charge - in a market with relatively easy market entry and exit is known as monopolistic ---

competition

--- profit creates an incentive for other monopolistically competitive firms to enter the market.

economic

Depending on the demand for a monopolistically competitive firm's product, it may have

economic profits, losses, or normal profit.

The underutilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes the average total cost is called --- capacity

excess

When monopolistically competitive firms realize losses in the short run, some firms will --- the industry, --- market shares and prices and eliminating losses for the remaining firms.

exit; increasing

In the presence of economic losses, firms --- a monopolistically competitive market until the market reaches the point at which the firms are generating a(n) --- profit; then exit stops, and the market settles into its long-run equilibrium.

exit; normal

monopolistically competitive firm's demand curve is:

flatter than that of a monopolist.

A concentration ratio that measures the percentage of sales by the four largest firms in a particular industry is called the:

four-firm concentration ratio.

The percentage of total market sales accruing to one specific firm is called:

market share

Because --- competitive firms face a downward-sloping demand curve, their marginal revenue curve lies --- the demand curve. (Enter one word in each blank.)

monopolistic; below

The kinked demand model occurs when:

noncollusive oligopolistic firms ignore other firms' price increases, but match their price decreases.

An --- profit simply indicates that the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or to compete in a different industry.

normal

in an --- market, there are relatively few firms and the product is either standardized or differentiated.

oligopoly

Used in noncollusive oligopolistic markets, the practice of a dominant firm to signal upcoming price changes to other firms in the industry is known as

price leadership

used in noncollusive oligopolistic markets, the practice of a dominant firm to signal upcoming price changes to other firms in the industry is known as

price leadership

A monopolistically competitive firm should produce output until the marginal --- equals the marginal ---

revenue; cost

The market share refers to:

the percentage of total market sales accruing to one specific firm.

Profit maximization implies that monopolistically competitive firms should expand production up to the point where the marginal revenue equals the marginal cost. (True or False)

true

In a monopolistically competitive market - each firm produces a --- product - so firms face downward-sloping demand curves.

unique