Econ Chapter 13 & !6
Entry into monopolistic ally competitive industries is
Easy compared to oligopoly
In a small town of Geneva there are 5 firms that make watches. The firms respective output levels are 30 watches per year, 20 watches per year, 20 watches per year, 20 watches per year and 10 watches per year. The four-firm concentration ratio for the town's watch-making industry is:
30+20+20+20= 90
which of the following is a measure of the industry concentration that equals the sum of the squared percentage market shares of all firms in the industry
Herfindahl index
Resource allocation
Just as product prices allocate finished goods and services to consumers, resource prices allocate resources among industries and firms.
In a monopolistic competitive industry barriers to entry and exit are very low
LOW
when measuring industry concentration the __ is the percentage ratio of sales of the 4 largest firms in the an industry relative total industry sales
four firm concentration ratio
With numerous firms in an industry, there is no feeling of interdependence among them; each firm can determine its own pricing policy without considering the possible reactions of rival firms.
Independent action
Which of the following best describes the efficiency of monopolistically competitive firms
Neither allocatively efficient nor productively efficient
The presence of a relatively large number of firms ensures that collusion by a group of firms to restrict output and set prices is unlikely.
No collusion
which of the following are typical characteristics of monopolistic competition
No collusion, Independent and Small market share
Changes in product demand
Other things equal, an increase in the demand for a product will increase the demand for a resource used in its production, whereas a decrease in product demand will decrease the demand for that resource.
changes in productivity
Other things equal, an increase in the productivity of a resource will increase the demand for the resource and a decrease in productivity will reduce the demand for the resource
when a business secures a convenient store location even if it means higher prices and less selection it is known as
Product differntiation
Entry and exit form monopolistic competitive industries is
Relative Easy
Each firm has a comparatively small percentage of the total market and consequently has limited control over market price
Small market shares
Firms in monopolistic competition produce good with :
slightly varying physical characteristics and varying degrees of customer service
In the long run, firms will
enter a profitable monopolistically competitive industry and leave an unprofitable one
the demand curve faced by a monopostically competitive firm is
highly but not perfectly elastic
monopolistic competition is distinguished by
product differentiation
The equality of price and marginal cost yields
allocative efficiency
which is characterized by (1) a relatively large number of sellers; (2) differentiated products (often promoted by heavy advertising); and (3) easy entry to, and exit from, the industry.
monopolistic competition
The goal of product differentiation and advertising—so-called
non price competition
There are 10 firms in an Industry, and each firm has a market share of 10%. The industrys herdindahl index is:
100*10= 1,000
A monopolistic competitor's long-run equilibrium output is such that price exceeds 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 underallocated to the product). The efficiency loss (or deadweight loss) associated with monopolistic competition is greatly muted by the benefits consumers receive from product variety.
A monopolistic competitor's long-run equilibrium output is such that price exceeds 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 underallocated to the product). The efficiency loss (or deadweight loss) associated with monopolistic competition is greatly muted by the benefits consumers receive from product variety.
Application of the MRP = MRC rule to a firm's MRP curve demonstrates that the MRP curve is the firm's resource demand curve. In a purely competitive resource market, resource price (the wage rate) equals MRC.
Application of the MRP = MRC rule to a firm's MRP curve demonstrates that the MRP curve is the firm's resource demand curve. In a purely competitive resource market, resource price (the wage rate) equals MRC.
A software company in Silicon Valley uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labor, MPL = 5 apps per month while PL = $1,000 per month. And when it comes to capital, MPC = 8 apps per month while PC = $1,000 per month. If the company wants to maximize its profits, it should:
Decrease labor while increasing capital.
which of the following is a characteristic of monopolistic competion
Differentiated products
Monopolistic competition involves a relatively large number of firms operating in a noncollusive way and producing differentiated products with easy industry entry and exit. In the short run, a monopolistic competitor will maximize profit or minimize loss by producing the level of output at which marginal revenue equals marginal cost. In the long run, easy entry and exit of firms causes monopolistic competitors to earn only a normal profit
Monopolistic competition involves a relatively large number of firms operating in a noncollusive way and producing differentiated products with easy industry entry and exit. In the short run, a monopolistic competitor will maximize profit or minimize loss by producing the level of output at which marginal revenue equals marginal cost. In the long run, easy entry and exit of firms causes monopolistic competitors to earn only a normal profit
The goal of advertising a product to differentiation it fro that of others competitors product in order to make price less of a factor when a consumer makes a purchase is what is considered so called
Non price competiton
Non ___ competition is competition illustrate through product differentiation and advertising
PRICE
Money-income determination
Resource prices are a major factor in determining the income of households.
The resource demand curve of a purely competitive seller is downsloping solely because the marginal product of the resource diminishes; the resource demand curve of an imperfectly competitive seller is downsloping because marginal product diminishes and product price falls as output is increased.
The resource demand curve of a purely competitive seller is downsloping solely because the marginal product of the resource diminishes; the resource demand curve of an imperfectly competitive seller is downsloping because marginal product diminishes and product price falls as output is increased.
To maximize profit, a firm will purchase or hire a resource in an amount at which the resource's marginal revenue product equals its marginal resource cost (MRP = MRC).
To maximize profit, a firm will purchase or hire a resource in an amount at which the resource's marginal revenue product equals its marginal resource cost (MRP = MRC).
Cost minimization
To the firm, resource prices are costs. And to obtain the greatest profit, the firm must produce the profit-maximizing output with the most efficient (least costly) combination of resources.
In the short run, monopolistically competitive firms maximize profit or minimize loss using
exactly the same strategy as pure competitors and monopolists
In monopolistic competition, the gap between the minimum-ATC output and the profit-maximizing output identifies
excess capacity
In monopolistic competition, the gap between the minimum-ATC output and the profit-maximizing output identifies
excesss capacity
compared with oligopoly and monopoly, entry of new firms into monopolistic competitive industries is
relatively easy because economies scale are few
Cindy is a baker and runs a large cupcake shop. She has already hired 11 employees and is thinking of hiring a 12th. Cindy estimates that a 12th worker would cost her $100 per day in wages and benefits while increasing her total revenue from $2,600 per day to $2,750 per day. Should Cindy hire a 12th worker?
yes
Alice runs a shoemaking factory that utilizes both labor and capital to make shoes. Which of the following would shift the factory's demand for capital? You can select one or more answers from the choices shown
• Many consumers decide to walk barefoot all the time. • New shoemaking machines are twice as efficient as older machines. • The wages that the factory has to pay its workers rise due to an economy-wide labor shortage.
