ECON 200 Monopolistic Competition & Oligopoly
The top four firms in the retail surfboard industry maintain total sales of $3 million per year. If the entire retail surfboard industry sells $12 million worth of output, then the four-firm concentration ratio is ____%.
25
The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is called ______________ loss.
deadweight
What measures a firm's profit?
-(P-ATC)*Q -TR-TC -Profit per Unit * Output
(*P/Q)=^P-ATC tells us ____________ per unit. *P=profit ^P=price
profit
(^P-ATC)*Q equals __________.
profit
Determine whether the market can reasonably be described as monopolistically competitive. AM or FM Radio
Monopolistically Competitive
Monopolistic competition and a monopoly are
not the same market structure
Determine whether the market can reasonably be described as monopolistically competitive. Clothing
Monopolistically Competitive
A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition is called a ___________.
cartel
When firms, individuals, or any group of economic actors engage in ______________________, they coordinate their actions to achieve a desired outcome.
collusion
A situation in which decision makers coordinate their actions to achieve a desired outcome describes
collusion.
To calculate profit, which three pieces of information must be identified?
-Price -Average Total Cost -Quantity of Output
What tow formulas tell us the profit per unit?
-Profit per Unit = Price - Average Total Cost -(*P/Q) = ^P - ATC *P=profit ^P=price
Indicate the two most common numerical indicators of market concentration
-The Herfindahl-Hirschman Index (HHI) -The four-firm concentration ratio (CR4).
Monopoly is a market structure characterized by
-a market with barriers to entry. -the firm having significant price control. -a single seller. -a good or service for which there are no close substitutes.
The characteristics of an oligopoly market are
-either standardized or differentiated products. -a few large producers. -producers who behave strategically when making decisions related to the features, prices, and advertising of their products. -extensive entry barriers. -producers who are price makers.
Where there is productive efficiency
-output is produced at the lowest possible total cost per unit of production. -output is produced using the fewest resources possible to produce a good or a service.
When there is productive efficiency
-output is produced using the fewest resources possible to produce a good or a service. -output is produced at the lowest possible total cost per unit of production.
A number of entry barriers are present in oligopolistic markets, including
-patents. -significant cost of capital. -control of the resources needed to produce output. -economies of scale that may allow only a small number of firms to operate in a market. -pricing strategies.
An industry is considered oligopolistic if the CR4 exceeds _____%.
40
Determine whether the market can reasonably be described as monopolistically competitive. Shampoo
Monopolistically Competitive
Determine whether the market can reasonably be described as monopolistically competitive. Common Salt
Not Monopolistically Competitive
Determine whether the market can reasonably be described as monopolistically competitive. Satellite Radio
Not Monopolistically Competitive
Name a characteristic that is not a characteristic of an oligopoly?
Producers who are price takers.
Which of the following is not a characteristic of an oligopoly. -A few large producers. -Producers who are price takers. -Extensive entry barriers. -Either standardized or differentiated products.
Producers who are price takers.
In monopolistically competitive markets, what allows consumers to be more responsive to price changes?
The availability of close substitutes.
What aspect of oligopolistic firms does game theory help us study?
Their strategic behavior.
The four-firm concentration ratio is
a concentration ratio that measures the percentage of sales by the four largest firms in a particular industry.
Monopolistic competition is a market 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 relatively easy market entry and exit.
In a monopolistically competitive market, each firm produces a __________________ product, so firms face downward-sloping demand curves.
differentiated
A clear benefit to monopolistic competition for consumers is product _________________.
differentiation
The demand for a monopolistically competitive is more ___________ than the demand faced by a pure monopoly because of the availability of close substitutes.
elastic
Consider the monopolistically competitive firm represented in the graph. The firm begins in long-run equilibrium, generating a normal profit. In the long run, other firms will __________ this market.
enter
A number of ____________ barriers are present in oligopolistic markets.
entry
Monopolistic competition and perfect competition have one main characteristic in common: relatively easy market _____________ and ________________.
entry; exit
When profit equals zero, the firm is
generating normal profits.
Through advertising and branding, monopolistically competitive firms increase the demand for their products and make those demands relatively more _________, allowing them to charge higher ___________ and generate _________ economic profits.
inelastic; prices; higher
The output level for a monopolistically competitive firm is lower than the output level that achieves the minimum average total cost for the firm and, as such
is not productively efficient in the long run.
For ______________ competitive firms, branding serves as a signal to consumers about the products they are going to purchase.
monopolistically
In a _________________________ competitive market, consumers can usually find exactly what they are looking for based on their preferences and budgets.
monopolistically
Because ___________________ competitive firms have some control over prices, the firms will charge consumers the price they are willing and able to pay for the available output, which is found by projecting the profit-maximizing output level onto the ___________ curve.
monopolistically; demand
A market structure characterized by a single seller is a _______________.
monopoly
In a monopolistically competitive market, the closer the substitutes are to each other, the __________________ elastic each firm's demand curve will be.
more
Games can have
more than one Nash equilibrium.
A manufacturer's profits are determined not only by its decisions but also by the decisions of the other firms in the industry. This is why we say that oligopolistic firms are
mutually interdependent.
A _________________ profit simply indicates that the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or to compete in a different industry.
normal
Consider the monopolistically competitive firm represented in the graph. The firm begins in long-run equilibrium, generating a normal profit. The long-run equilibrium is _________________.
not allocatively and productively efficient.
In a(n) ______________, there are a few large producers.
oligopoly
In a(n) _______________ market, there are relatively few firms and the product is either standardized or differentiated within the industry.
oligopoly
In an oligopoly
producers may or may not earn economic profits.
The strategy of distinguishing one firm's product from the competing products of other firms is called _________________ differentiation.
product
Consider the monopolistically competitive firm represented in the graph. The firm begins in long-run equilibrium, generating a normal profit. With an increase in demand, the firm will generate an economic _______________.
profit
The difference between total revenue and total cost is
profit.
A monopolistically competitive firm should produce output until the marginal ________________ equals the marginal _________________.
revenue; cost
Consider the monopolistically competitive firm represented in the graph. The firm begins in long-run equilibrium, generating a normal profit. After the entry of new firms, the new demand and marginal revenue curves for this firm will ____________.
shift to the left
Consider the monopolistically competitive firm represented in the graph. The firm begins in long-run equilibrium, generating a normal profit. Suppose there is a large increase in demand in the overall market, resulting in an increase in demand for this firm's product. The demand and the marginal revenue curves will ____________.
shift to the right
Given that oligopolistic firms face other competitors in their markets, their behavior must definitely be _________________.
strategic
One similarity between the numeric measures of the CR4 and the HHI is
the higher the number, all else held constant, the more concentrated the industry.
The market share refers to
the percentage of total market sales accruing to one specific firm.
When a firm is producing at an output level where the MR=MC, it is following
the profit-maximization rule.
Consider the monopolistically competitive firm represented in the graph. The firm begins in long-run equilibrium, generating a normal profit. Once the demand for this firm's product increases, the new profit-maximizing level of output and price for the firm _____________.
will be higher than the original
Monopolistically competitive markets
combine characteristics of competitive markets and pure monopolies.
Laws designed to prevent firms from engaging in behaviors that would lessen competition in a market are called
antitrust laws.