chapter 16 economics

When all players in a game have a dominant strategy, the result is called a __________ equilibrium

Nash

_____ describes markets with only a few firms selling similar products.

Oligopoly

For all its similarities to a monopolist in the short run, the monopolistically competitive firm faces one huge problem that the monopolist does not. Which problem is this?

Other firms can enter the market.

____________ provides product information in a pleasant, easy-to-understand format, free of cost and inconvenience.

Advertising

_____________ can give high-quality firms a way to credibly signal the quality of their products because it costs money

Advertising

___________ can convey useful information to consumers.

Advertising

___________ is often intended to make us associate a particular image or emotion with that product.

Advertising

__________ competitive firms operate at smaller-than-efficient scale.

Monopolistic

Monopolistically competitive firms make economic profits by engaging in price discrimination.

False

The profit-maximizing production quantity is at the point where the

MC = MR.

According to the price effect, the firm receives a lower price and therefore a lower profit for each unit it sells.

True

True or false: Advertised messages often have little or nothing to do with the product being advertised.

True

Assuming that production involves both fixed and marginal costs, the average total cost curve faced by monopolistically competitive firms is ____________ shaped

U

Assuming that production involves both fixed and marginal costs, monopolistically competitive firms face a

U-shaped average total cost curve.

An oligopoly market has:

a few firms, which sell a similar good or service

In between perfect competition and monopoly lie two market structures characterized by

a small number of large firms with differentiated products.

_______________ can give high-quality firms a way to credibly signal the quality of their products because it costs money.

advertising

A Nash equilibrium occurs when

all players in a game have a dominant strategy

In an oligopoly with two firms, regardless of what the other firm does, each firm has

an incentive to renege on the deal and compete.

Other firms have an incentive to enter the market when existing firms

are making positive economic profits.

Because firms know more about the true quality of their products than consumers do, there is __________ information in monopolistically competitive markets.

asymmetric

When a number of firms collude to make collective production decisions about quantities or prices it is called a

cartel

If advertising persuades customers that products are more different than they truly are, firms can

charge a higher markup over marginal cost.

When a number of firms _____________ to make collective production decisions about quantities or prices it is called a cartel.

collude

The act of working together to make decisions about price and quantity is _________.

collusion

More firms making more products that are similar to the original product means that

consumers have a wider range of substitutes.

Because the market outcomes in a competitive oligopoly are between those of a monopoly and a perfectly competitive market, __________ loss still exists, but it is __________ than when there is collusion.

deadweight; lower

If advertising persuades customers that products are more different than they truly are, it ___________ consumers' willingness to _________ between similar products.

decreases; switch

The optimal production point for a monopolistically competitive firm in the long-run market equilibrium will always be on the

decreasing section of the ATC curve.

Monopolistically competitive firms face a downward-sloping ___________ curve

demand

The profit-maximizing price is determined by the point on the ___________ curve that corresponds to the profit-maximizing quantity.

demand

When there are more product options from which consumers can choose, the

demand curve faced by the firm shifts to the left.

When one strategy is always the best for a player to choose, regardless of what other players do, we call it a __________ strategy.

dominant

A duopoly will tend to

drive prices and profits down below the monopoly level.

When there are only two firms competing in a market it is called a(n)

duopoly

Product differentiation enables monopolistically competitive firms to keep making ___________ profits in the _________ run.

economic; short

As long as firms currently in the market are earning ____________ profits, firms will enter the market with products that are very close substitutes until existing firms are earning an economic profit of ____________

economic; zero

Because selling more would add to profits, monopolistically competitive firms have an incentive to

engage in advertising and brand promotion.

For all its similarities to a monopolist in the short run, the monopolistically competitive firm faces one huge problem that the monopolist does not: Other firms can _____________ the market.

enter

As long as firms currently in the market are earning negative profits, firms will ___________ the market until existing firms are no longer earning negative profits.

exit

In an oligopoly with two firms, when firms compete with each other they drive quantity sold below the profit-maximizing monopoly level that would be achieved by collusion.

false

Because advertising costs money, it can give

high-quality firms a way to credibly signal the quality of their products

Monopolistic competition is inefficient because firms maximize profits at a price that is:

higher than marginal cost.

Firms in a monopolistically competitive market face the same situation as firms in a perfectly competitive market in that profits are driven to zero _____.

in the long run

Firms have an incentive to persuade customers that their products cannot easily be substituted with a rival product because product differentiation enables monopolistically competitive firms to

keep making economic profits in the short run.

Monopolistically competitive firms want to sell more because price is higher than _________ cost, so selling more would add to profits.

marginal

In perfectly competitive markets,

marginal revenue equals price.

In monopoly markets,

marginal revenue is less than price

Imperfect competition includes the market structures of

monopolistic competition and oligopoly.

Two defining features of the two market structures that lie between the extreme models of ___________ and perfect competition are a small number of large firms and product variety. (Enter one word in each blank.)

monopoly

Because the market outcomes in a competitive oligopoly are between those of a ________________, deadweight loss still exists, but it is lower than when there is collusion.

monopoly and a perfectly competitive market

In oligopoly, the price effect is smaller when there are ________ firms.

more

An ____________ production decision affects not only its own profits, but those of other firms as well.

oligopolist's

A decision that is profit-maximizing for an individual firm lowers combined profits for the market as a whole in a(n) _______ market.

oligopoly

A market with only a few firms that sell similar products describes

oligopoly.

In a dominant strategy,

one strategy is always the best choice for a player, regardless of what other players do.

Unlike ___________ competition, oligopolistic competition does not necessarily drive ___________ all the way down to the efficient level.

perfect; profits

Oligopoly and monopolistic competition are examples of market structures that are ____________ competitive

perfectly

Monopolistically competitive firms make economic profits by

persuading buyers that their product is different from the products of their competitors.

An oligopolist will continue to increase output up to the quantity at which the _____ quantity effect of an additional unit on profits is exactly equal to the _____ price effect.

positive; negative

An oligopolist will continue to increase output up to the quantity at which the _____________ quantity effect of an additional unit on profits is exactly equal to the ____________ price effect.

positive; negative

A monopolistically competitive firm cannot adjust its ___________ without causing a change in the ____________ consumers demand. (Enter one word per blank.)

price; quantity

The act of working together to make decisions about __________ and __________ is collusion

price; quantity

Other firms have an incentive to enter the market when existing firms are making economic

profit

In the long run, firms in a monopolistically competitive market face the same situation as firms in a perfectly competitive market in that

profits are driven to zero.

According to the _________ effect, an additional unit of output sold at a price above __________ cost increases the firm's profit.

quantity; marginal

According to the price effect, an additional unit of output raises the total ___________ in the market and drives down the market __________ .

quantity; price

For an oligopoly, the profit-raising ____________ effect is felt only by the individual firm that decides to produce more; the profit-lowering _____________ effect also affects all other firms in the market.

quantity; price

In oligopoly when the ___________ effect outweighs the __________ effect, profit-maximizing firms will increase their output.

quantity; price

In oligopoly,

the price effect is smaller when there are more firms.

Monopolistic competition is inefficient because

there is deadweight loss.

Zero profit means that

total revenue is exactly equal to total cost.

If you are in charge of a company in an oligopoly, it is vital to

watch competitors.

In an oligopoly with two firms, both firms do _________ when they compete with each other than when they collude.

worse

__________ profit means that total revenue is exactly equal to total cost.

zero