Monopolistic Competition and Oligopoly

A clear benefit to monopolistic competition for consumers is product ______________.

differentiation

Monopolistic competition and perfect competition have one main characteristic in common a relatively __________market entry and exit.

easy

Monopoly is a market structure, characterized by :

- the firm having significant price control -single seller -a good or service for which there are no close substitutes -a market with barriers to entry

When there is productive efficiency:

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

Because the products of monopolistically competitive firms are ___________ from other companies in their industry, these firms are able to have some control over the ___________ of their products.

different, price

***A unique feature of an oligopolistic industry is _____________.

mutual interdependence

Given that oligopolistic firms face other competitors in their markets, their behavior must be _________.

strategic

A number of entry barriers are present in oligopolistic markets, including:

-patents -control of the resources to produce capital -significant costs of capital -economies of scale that may allow only a small number of firms to operate in market -pricing strategies

To calculate profit, which three pieces of information must be identified?

-price -Average total cost -quantity of output

the characteristics of an oligopoly are:

-producers who behave strategically when making decisions related to the features, prices, and advertising of their products -producers are price makers -a few large producers -standardized or differentiated products -extensive entry barrier

____________ theory is the study of strategic behavior of decision makers.

Game

Allocative efficiency occurs when:

MB = MC

What measures the percentages of sales by the four largest firms in a particular industry?

The four-firm concentration ratio

T or F: Games can have more than one Nash equilibrium.

True

profit maximization implies that monopolistically competitive firms should expand production up to the point where MR=MC.

True

***Assume that a firm in an Oligopoly has a kinked demand curve. In that case, economic theory predicts which of the following outcomes?​

Within a wide range of conditions, the pricing of output will be unresponsive to changes in marginal costs (i.e.prices will be inflexible)

The Herfindhal-Hirschman Index (HHI) refers to

a concentration index that measures the sum of the squared percentage of sales from all firms in a particular industry.

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

allocatively

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

anti trust laws

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

cartel

***When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise, restrict competition, they are practicing the strategy of ________________.

collusion

Monopolistically competitive market:

combine characteristics of competitive markets and pure monopolies

***Mutual interdependence means that in each firm an oligopoly

considers the reactions of its rivals when it determines its pricing policy

The mutual independence observed among politic firms is often studied using the tools of ____________

game theory

Monopolistic competition are:

not the same market structure

***Answer the next question based on the following payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. High Price A Low priceA High PriceB| a= 250 b=250 |. a=325 b=200 Low Price B| a =200 b=325 |. a=175 b=175 If firm A adopts the high-price strategy, then firm B would adopt the

low price strategy and earn 325

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 a relatively easy market entry and exit is known as _________________ competition.

monopolistic

For __________ competitive firms, branding serves as a signal to consumers about the products they are going to purchase.

monopolistic

in a __________ market, consumers can usually find exactly what they are looking for based on their needs and preferences and budget.

monopolistic

The demand for a _______ competitive firm is more elastic than the demand faced by pure _______ because of the availability of close substitutes.

monopolistically , monopoly

***In which market models are there the most significant barriers to entry?

oligopoly and pure monopoly

***In an oligopoly, producers' agreements to restrict output tend to be unstable because each firm has an incentive to

produce more than its output quota

In an oligopoly:

producers may or may not earn economic profits

producing output at the lowest possible cost of production per unit is ________________ efficiency.

productive

***If an industry has a Herfindahl index of 10,000, then

the industry is a single firm

The market share refers to

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

***If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

the pure monopoly model