Chapter 17 and 18
a nash equilibrium
I. is named after noble prize winner john nash II. occurs when each player chooses the best strategy given the strategy of the other player
when oligopolies seek to operate as a single price monopoly, the firms produce at the point where
MR=MC
In the long run a firm in monopolistic competition produces at an output level where
P=ATC and MR=MC
When a firm maximizes its profit, which of the following is correct for firms in monopolistic competition and perfect competition
P=MR=MC for firms in perfect competition and P>MR=MC for firms in monopolistic competition
What does monopolistic competition have in common with monopoly
a downward sloping demand curve
a cartel is
a group of firms acting together to raise price, decrease output and increase economic profit
Collusion results when a group of firms
act together to limit output, raise prices, and increase economic profit
to determine if a market is an oligopoly we need to determine if
the firms are so few that they recognize their mutual interdependence
a firm faces a small number of competitors this firm is competing in
an oligopoly
if the four firm concentration ratio for the market of diapers is 73 percent then this industry
an oligopoly
at a long run equilibrium in monopolistic competition price equals
average total cost
To maximize profit a firm in monopolistic competition will produce the quantity where marginal revenue
equals marginal cost
The major dilemma facing boeing and Airbus is the
fact that if each firm separately tries to maximize its profit, it might windup with less profit that other wise
In an oligopoly there are
few firms and barrier to entry
the tool that economists use to analyze the mutual interdependence of oligopolies is
game theory
a firm in monopolistic competition is
inefficient because price exceeds marginal cost
the US justice department
is likely to challenge a merger if the HHI exceeds 1800
when a city licenses only 3 taxi firms to serve the market the city has created a
legal oligopoly
if four firm concentration ratio of an industry is
less than 40, the industry is considered monopolistic competition
The marginal revenue curve facing a monopolistically competitive firm
lies below demand curve
concentration ratios
measure whether the market is dominated by a small number of firms
an industry with a large number of firms , differentiate products, and free entry and exit is called
monopolistic competition
if the HHI for the widget industry is 1,200 then the market structure is
monopolistic competition
Long run economic profits are most likely to be earned in
monopoly and oligopoly
An oligopoly created because of economies of scale is called a
natural oligopoly
Because of the number of firms in monopolistic competition
no one firm can dominate the market
a market in which the HHI exceeds 1800 is considered to be
not competitive
Which of the following is found ONLY in oligopoly
one firms actions affect another firms profit
The major difference between monopolistic competition and monopoly is
only a monopoly can earn an economic profit in the long run
If a firm in monopolistic competition is earning an economic profit
other firms can enter the market
if the four firm concentration ratio equals .1 percent for the Mexican tomato industry then this industry is best characterized as
perfect competition
which of the following is NOT a characteristic of long run equilibrium in monopolistic competition
production occurs at minimum average total cost
which of the following is the best example of a differential product
running shoes
in an oligopoly output is
somewhere between the output in monopoly and that in perfect competition outcomes
The herfindahl-Hirschman index measures market concentration in an industry by summing the square of the percentage marker shares for
the 50 largest firms
in a long run equilibrium a firm in monopolistic competition makes
zero economic profit
which of the following four firm concentration ratios would be the best indicator of a monopoly?
100 percent
because of product differentiation, firms
can compete on the basis of quality
Firms in an oligopoly
can each influence market price
A differentiated product has
close but not perfect substitutes
the concepts of mutual interdependence and game theory illustrate the fact that firm competing in oligopoly
consider the actions of the rivals before changing the price of their product
If a few oil producing countries in the middle east decide to jointly limit the production of oil
they are forming a cartel
