Micro Economics Practice set 11
What does monopolistic competition have in common with perfect competition?
A large number of firms and freedom of entry and exit
Duopoly is
A two-firm oligopoly
A group of firms action together to limit output , raise price, and increase economic profit is called a
Cartel
The concepts of mutual interdependence and game theory illustrate that fact that firms competing in oligopoly
Consider the actions of rivals before changing the price of their product
Perfect Competition is characterized by all of the following except...
Considerable advertising by individual firms
What is the difference between perfect competition and monopolistic competition??
In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.
One characteristic of monopolistic competition is that is has
Large barriers to entry
A market with a large number of sellers
Might be monopolistically competitive or perfectly competitive market
1.large number of firms compete 2.Each firm produces a differentiated product 3.Firms are free to enter and exit
Monopolistic Competition
If firms in an oligopoly industry consistently cut their price to sell more output, what price and output will result?
The competitive price and output
Product differentiation allows a firm to compete with another firm on the basis of
The level of output and the price
Which of the following is an example of natural monopoly?
The local water company
A monopoly produces a product and there barriers to entry in the market
With no close substitutes; are
A major characteristic of a monopoly is that
A barrier to entry keeps out competitors
A monopoly is
Able to set the price for its product
The prisoner's dilemma is similar to the problem faced by firms in an oligopoly in the United States because
Mutual interdependence exists, and collusion is illegal in the United States, so the firms cannot legally communicate.
A natural monopoly exists when
One firm can supply an entire market at a lower average total cost than can two or more firms
The fact that firms in oligopoly are interdependent means that
One firm's profitsare affected by other firms actions
In monopolistic competition, a firm can set the price for its product because of
Product differentiation