Monopolistic Competition and Oligopoly - ECON 2302

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

- Quantity of output - Price -Average total cost

Monopolistic Competition

A market structure characterized b a relatively large number of sellers producing a differentiated product, for which they have some control over the price they change, in a market with relatively easy market entry and exit.

Oligopoly

A market structure characterized by a few large producers, of either standardized or differentiated products, operating in industries with extensive entry barriers.

Mutual Interdependence

A situation in which the strategy followed by one producer will likely affect profits and behavior of another producer.

______ efficiency is producing the goods and services that consumers most want in such a way that the marginal benefit equals the the marginal cost.

Allocative

Impediments that prevent firms from entering a market or an industry are known as:

Barriers to entry.

A situation in which individuals, firms, or any group of actors coordinate their actions to achieve a desire outcome is:

Collusion.

Monopolistically competitive markets:

Combine characteristics of competitive markets and characteristics of pure monopolies.

A market structure characterized by a relatively large number of sellers producing a different product, for which they have some control over the price they charge, in a market with relatively easy market entry and exit is down as monopolistic _____.

Competition

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

Consumers

Because the products of monopolistically competitive firms are ______ from other companies in their industry, the _____ curve they face is downward sloping.

Differentiated; demand

The total revenue minus the implicit and explicit costs of production is ______ profit.

Economic

Economic profit creates an incentive for other monopolistically competitive firms to _____ the market.

Enter

Monopolistic competition and perfect competition have one main characteristic in common: relatively easy market _____ and ______.

Entry; exit

______ theory helps us study the strategic behavior of oligopolistic firms.

Game

Allocative efficiency occurs when:

MB = MC.

Because monopolistically competitive firms face a downward-sloping demand curve, their _____ revenue curve lies below the _____ curve.

Marginal; demand

A payoff _____ is a table showing the potential outcomes arising from the choices made by decision makers.

Matrix

_____ competitive firms are able to have some control over the price of their products.

Monopolistically

Games can have more than one Nash equilibrium. T of F.

True.

Which of the following are the four characteristics of a perfectly competitive market?

- Large number of buyers and sellers. - Producers who are price takers. - Easy entry and exit. - Standardized product

One common feature of _____ competitive market is that firm invest heavily in product development and innovation, which benefits _____ greatly.

Monopolistically; consumers

Through advertising and branding, _____ competitive firms increase the demand for their products and make demands relatively _____ inelastic, allowing them to charge _____ prices and generate larger economic profits.

Monopolistically; more; higher

A manufacture'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 oligopoly firms are:

Mutually interdependent.

Monopolistic competition and a monopoly are:

No the same market structure.

Monopolistically competitive firms are unable to produce enough output to reach the minimum average total cost because of the:

Presence of other monopolistically competitive firms in the industry.

Monopolistically competitive firms are able to have some control over the _____ of their products.

Price

In an oligopoly:

Producers may or may not earn economic profits.

Which of the following is NOT a characteristic of an oligopoly?

Producers who are price takers.

Productive Efficiency

Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service.

Allocative Efficiency

Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost.

A monopolistically competitive firm should produce output until the marginal ______ equals the marginal ______.

Revenue; cost

Game theory is the study of the ______ behavior of decision makers.

Strategic

The behavior followed by oligopolistic firms needs to be _____, given that they face other competition in their markets.

Strategic

Normal Profit

The level of profit that occurs when total revenue is equal to total cost.

Economic Profit

The level of profit that occurs when total revenue is greater than total cost.

Loss

The level of profit that occurs when total revenue is less than total cost.

Product Differentiation

The strategy of distinguishing one firm's product form the competing products of other firms.

Excess Capacity

The underutilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes average total cost.

Deadweight Loss

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium.

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

Variety

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:

- Pricing strategies. - Economies of scale that may allow only a small number of firms to operate in a market. - Significant costs of capital. - Patents. - Control of the resources needed to produce output.

The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the:

Deadweight loss.

The characteristics of an oligopoly competitive market are:

- Producers who behave strategically when making decisions related to the features, prices, and advertising of their products. - A few large producers. - Operation in industries with extensive entry barriers. - Producers who are price makers. - Wither standardized or differentiated products.