Robert N. Econ 11-13 Test 11111111111

11: The amount of market power the firms possess, however, depends on several factors. The determinants of market power include_____, _____, _____, _____.

-Number of producers. -Size of each firm. -Barriers to entry. -Availability of substitute goods.

11: The Oligopoly market structure has ___1___ Number of firms, __2__ Barriers to entry, __3__ Market power, and __4__ Type of Product.

1. Few, 2. High, 3. Substantial, 4. Standardized or differentiated.

11: An attempt by one oligopolist to __1__ its market share by cutting prices will lead to a general __2__ in the market price.

1. Increase, 2. Reduction - Oligopolists avoid price competition and instead pursue nonprice competition. (ex: advertising and product differentiation).

11: To maximize Industry Profits a monopolist and oligopolist must produce where __1__ __1__ __1__ equals __2__ __2__ __2__.

1. Industry marginal revenue, 2. Industry marginal cost - Select that one rate of output where marginal revenue equals marginal cost, and it would charge whatever price consumers were willing and able to pay for that rate of output

11: There's an inherent conflict in the joint and individual interests of oligopolists. Their joint, or collective, interest is in maximizing __1__ profit, the individual interest of each oligopolist, however, is to maximize its own __2__ share and profit.

1. Industry, 2. Market Share (of sales) - Oligopolists must coordinate their production decisions so that: Industry output and price are maintained at profit-maximizing levels and each oligopolistic firm is content with its market share.

11: The Monopolistic Competition market structure has ___1___ Number of firms, __2__ Barriers to entry, __3__ Market power, and __4__ Type of Product.

1. Many, 2. Low, 3. Some, 4. Differentiated.

11: In an oligopoly, the __1__ __1__ and __2__ __2__ __2__ curves represent the combined production capabilities of several firms, rather than only one.

1. Marginal Cost, 2. Average Total Cost - An oligopoly will want to behave like a monopoly, choosing a rate of industry output that maximizes total industry profit.

11: Accordingly, for most of the firms listed in the table, __1__ __1__ and __2__ __2__ go hand in hand. Indeed, the largest firms enjoy sales volumes that exceed the entire output of most of the countries in the world

1. Market Power, 2. Firm Size.

11: The Monopoly market structure has ___1___ Number of firms, __2__ Barriers to entry, __3__ Market power, and __4__ Type of Product.

1. One, 2. High, 3. Substantial, 4. Unique.

11: If oligopolies succeed in establishing monopoly prices and profits, they'll attract the envy of would-be entrants. To keep potential competitors out of their industry, oligopolists must maintain barriers to entry which are? (8 Possible)

1. Patents, 2. Distribution Control, 3. Input Lock-Ups, 4. Mergers and Acquisition, 5. Government Regulation, 6. Nonprice Competition, 7. Training, 8. Network Economies

11: In an Oligopoly Market; the demand curve will be more __1__ if rivals match price changes, and more __2__ if rivals don't match the price changes.

1. Steep (harsh downward slope), 2. Shallow (softer downward slope) - The degree to which an oligopolist's sales increase when its price is reduced depends on the response of rival oligopolists.

11: The Duopoly market structure has ___1___ Number of firms, __2__ Barriers to entry, __3__ Market power, and __4__ Type of Product.

1. Two, 2. High, 3. Substantial, 4. Standardized or differentiated.

11: The Perfect Competition market structure has ___1___ Number of firms, __2__ Barriers to entry, __3__ Market power, and __4__ Type of Product.

1. Very large number of firms, 2. None, 3. None, 4. Standardized.

13: Deregulating is pushed by what two concerns?

1. dynamic inefficiencies that regulation imposes 2. advancing technologies

13: in a natural monopoly, production efficiency is achieved at capacity production, where ____ is minimum

ATC

11: _____ laws forbid dismantling barriers to entry and thereby promote contestable markets, and prohibit oligopolists from extending their market power via such mechanisms: acquisitions, excessive or deceptive advertising, and the financing of political campaigns.

Antitrust - Government intervention to alter market structure or prevent abuse of market power.

11: When a group of firms with an explicit, formal agreement to fix prices and output shares in a particular market the oligopoly transforms into a _____.

Cartel

11: The standard measure of market power is the _____ _____. (The proportion of total industry output produced by the largest firms)

Concentration Ration - This ratio tells the share of output (or combined market share) accounted for by the largest firms in an industry.

11: In a _____ _____ a, potential rivals will seek to enter the market and share in the spoils. (An imperfectly competitive industry subject to potential entry if prices or profits increase)

Contestable Market - Should they succeed, the power of the former monopolist or oligopolists would be reduced.

The field of _____ _____ is dedicated to the study of how decisions are made when such strategic interaction exists—for example, when the outcome of a business strategy depends on the decisions rival firms make.

Game Theory

Marginal Cost (green) = Marginal Revenue (blue)

Graph Point A - Unregulated

Price (navy) = Marginal Cost (green)

Graph Point B - Regulated

Graph Point C - Zero Profit/ Subsidy Average Total Cost (dark green) = Price (navy)

Graph Point C - Zero Profit/ Subsidy

11: Between the two extremes of perfect competition and perfect monopoly lies most of the real world, which we call _____ ______?

Imperfect Competition - individual firms have some power in a particular product market.

11: In an Oligopoly Market; an oligopolist can achieve _____ _____ by charging a Prevailing Market Price and meeting market demand or Reducing Price below its rivals.

Increased Sales - increases in the market share of one oligopolist necessarily reduce the shares of the remaining oligopolists.

13: Are marginal cost low or high in a natural monopoly ?

Marginal cost are usually low, very low

11: Market power contributes to _____ _____ when it leads to resource misallocation (restricted output) or greater inequity (monopoly profits, higher prices).

Market Failure - An imperfection in the market mechanism that prevents optimal outcomes.

13: When do natural monopolies typically appear?

Natural monopolies typically emerge when fixed costs are extremely large

11: What is a market in which a few firms produce all or most of the market supply of a particular good or service? ______

Oligopoly - output is produced by just three or four firms. Indeed, in some markets, one single firm is so large that an outright monopoly is nearly attained.

11: A _____ ______summarizes the strategic options each oligopolist confronts.

Payoff Matrix - A table showing the risks and rewards of alternative decision options.

11: ______ price cuts are temporary price reductions intended to drive out new competition or reestablish market shares.

Predatory

11: When an oligopolist has _____ _____, other oligopolist in a particular product market follow the lead of one firm in raising prices

Price Leadership - The result is the same as if they had all agreed to raise prices simultaneously.

11: The most explicit form of coordination among oligopolists is _____ - ______, or when many producers agree to charge the same amount for a product.

Price-Fixing - The firms in an oligopoly explicitly agree to charge a uniform (monopoly) price.

11: Such attempts at _____ _______ are designed to make one firm's products appear different and superior to those produced by other firms.

Product Differentiation - If successful, such marketing efforts will increase product sales and market share or at least stop its rivals from grabbing larger shares.

11: An oligopolist's with lower market share can _____ towards a larger oligopolist by stepping up their own marketing efforts and cutting prices.

Retaliate - Expect rival oligopolists to match any price reductions.

12: Entry barriers are low in a monopolistic competitive firms True or False

True

13: ________ government intervention to alter market structure or prevent abuse of market power

antitrust

12: A more precise way to examine monopolistic competition is to look at ________ _____

competition ratios (low concentration ratios common in monopolistic competition)

13: _________ ____ the proportion of total industry output produced by the largest firms (usually the four largest)

concentration ratio

12: brand loyalty implies low ____________________

cross price elasticity of demand

13: ____-______ use of high prices and profits on one product to subsidize low prices on another product

cross-subsidizing

13: ______ _____ the difference between total revenue and total economic cost

economic profit

13: _______ __ ____ reductions in minimumm average costs that come about through increases in the size (scale) of plant and equipment

economies of scale

13: _______ _____ government intervention that fails to improve economic outcomes

government failure

13: Whats a distinctive characteristic of a natural monopoly?

its downward sloping ATC curve

13: _______ ____ _______ the offer (supply) of goods at prices equal to their marginal cost

marginal cost pricing

13: In other words, market power may cause _______ ________, leaving us with suboptimal market outcomes

market failure

12: each producer in a monopolistic competition has some ____ _____

market power

13: A ______ _______ exist when a single firm has such pervasive economies of scale that it will "naturally" dominate its industry

natural monopoly (one cable company is more efficient than many small cable companies)

12: in a monopolistic competition will modest changes in one firms price have influences on other firms?

no

13: _________ government intervention to alter behavior of firms-- for example, in pricing, output, or advertising

regulation

13: if you want to require efficient pricing (p=mc) we must provide a ______ to the natural monopoly

subsidy (p=mc would make a natural monopoly go bankrupt and leave the market unless one is implemented)