Economics Ch. 7 Notes and Book

What is economies of scale?

- A monopoly can sometimes emerge naturally when a firm experiences substantial economies of scale.

What are the barriers of entry for Oligopoly

- Economies of Scale - The high cost of entry - Product differentiation costs

Why might monopolies not be so bad?

- Economies of scale: economies of scale are substantial , a monopolist might be able to produce output at a lower average cost than could competitive firms. Therefore, the price, or a t least the cost of production could be lower with monopoly than with perfect competition. - Government regulations: government intervention can increase social welfare by forcing the monopolist to lower prices and increasing output. - Keeping Prices low to avoid regulation - Keeping Prices low to avoid competition

Different market conditions can create different types of monopolies. What are these conditions?

- Economies of scale: if a firms start up costs are high, and its average cost fall for each additional unit it produces, then it enjoys what economist call economies of scale. An industry that enjoys economics of scale can easily became a natural monopoly . - Natural monopolies - A natural monopoly is a market that runs most efficiently when one large firm provides all of the output. - Technology and change.

What are examples of perfect competition?

- Large corporations: Microsoft or General Electronics - Foreign exchange: yen, euros, and pounds - Agricultural products: livestock, corn, and wheat.

What are the there types of barrier to entry?

- Legal restrictions - Economies of scale - Control of essential resources

What are the 4 conditions of perfect competition?

- Many buyers and sellers - Identical products - Informed buyers and sellers- market provides buyer with info - Free market entry and exit- firms enter market when they can make money and leave it when they can't.

What are the 4 features of a market?

- Number of buyers ands sellers - Product's uniformity across suppliers - Ease of entry into the market - Forms of competition among firms

In what 4 ways do monopolistic competitions differentiate their products?

- Physical Differences - Location - Services - Product Image

What are the different types of government monopoly?

- Technological monopolies: The government grants patents, licenses that give the inventor of a new product the exclusive right to sell it for a certain period of time. - Franchises and Licenses: A franchise is a contract that gives a single firm the right to sell its goods within an executive market. A license is a government issued right to operate a business. - Industrial Organizations: In rare cases, such as sport leagues, the government allows companies in an industry to restrict the number of firms in the market.

What are the start-up softs to barriers of entry?

- The expenses that a new business must pay before the first product reaches the customer are called start up costs.

What are three obstacles in a cartel?

- cheating on the agreement - entry of rival firms. - technological advances

What are the characteristics of Monopolistic Competition?

- enter or leave the market with ease - enough sellers that they behave competitively - enough sellers that each tends to get lost in the crowd. - A particular firm, in deciding on a price, doe not worry about how other firms in the market will react ( in large cities, an individual restaurant, gas station, drugstore, dry cleaner or convenience store tends to act independently from its competitors.

A single firm can sometimes satisfy market demand at a ______ average cost per unit that could two or more smaller firms. Market demand is _______ great enough to allow more than one firm to achieve sufficient economies of scale.

- lower - not

Monopliest will try to __________ profits; therefore, compared with a perfectly competitive mark, the monopolist produces _________ goods are a _______ price.

- maximizes - fewer - higher

What are the four basic structures of markets?

- perfect competition - monopolistic competition - oligopoly - monopoly

What is legal restriction?

- preventing new firms from entering a market. Patents, licenses, and other legal restrictions are imposed by the government provide some producers with legal protection against competition.

What are the two views of government regulation?

- public interest - Special interest

Why may monopolies reduce social welfare?

- resources wasted securing monopoly privilege - monopolies may grow inefficient.

A perfectly competitive firm is so ______ relative to the size of the market that the firm's choice about how much to produce has _____ effect on the market price

- small - no

A successful monopolist typically will charge a _________ price than wold competitive firms. Thus, _______ consumers will be able to afford to buy the product.

-higher -fewer

______ that limited competion also have been repealed in trucking, securities trading, banking , and telecomutncations. These industries have become more competitive as a result of _______

-regulations - disregulation

What are the 4 features of perfect competitive markets?

1) There are many buyers and sellers- so many that each buys or sells only a tiny fraction of the total market output. (This ensures that no individual buyer or seller can influence the price). 2) Firms produce a standardized product, or a commodity (bushel of wheat, Microsoft stock). 3) Buyers are fully informed about the price, quality, and availability of products, and sellers are fully informed about all resources and technology. 4) Firms can easily enter or leave the industry. There are no obstacles preventing new firms from enter profitable markets.

What is a cartel?

A group of firms that agreed to act as a single monopolist to increase the market price and maximize the group's profits.

What does the demand curve facing an individual farmer look like?

A horizontal line

What is an oligopoly?

A market structure with a small number of firms whose behavior is interdependent.

What is a monopolistic competition?

A market structure with low entry barriers and many firms selling products differentiated enough that each firm's demand curve slopes downward.

What is perfect competition?

A market structure with many fully informed buyers and sellers of an identical product and ease of entry.

What is a government monopoly?

A monopoly crated by the government

What is a natural monopoly?

A monopoly that emerges from the nature of costs.

Why is a natural monopoly blocked?

A new entrant cannot sell enough output to experience the economies of scale enjoyed by an established natural monopolist.

Commodity

A product that is identical across seller, such as a bushel of wheat.

What is deregulation?

A reduction in government control over prices and firms entry in previously regulated markets, such as air lies and trucking.

What is a monopoly?

A sole supplier of a product with no close substitutes

What is an industry?

All firms that supply output to a particular market (cars, shoes, wheat)

Where can an oligopoly be traced to?

An oligopoly often can be traced to some barrier to entry, such as economies of scale or brand namers built up by years of advertising. Most of the arrears that applied to monopoly also apply to oligopoly.

What are the causes of the increate in competition?

Antitrust activity, deregulation, international trade, and technological change

What are laws that encourage competition in the market place.

Antitrust laws

What tries to prevent monopoly in those markets where competion seems desirable.

Antitrust laws

The _________ ___________ for a monopolist output also is the market _________ _________.

Demand Curve.

What is a monopoly (notes)?

a market dominated by a single seller.

What is the notes definition of perfect competition?

a market structure in which a large number of firms all produce the same product.

What is collusion?

an agreement among firms in the industry to divide the market and fix the price.

What do barriers to entry allow a monopolist to do?

charge a price above the competitive price.

To decrease competition and increase profit, oligopolistic firms, particularly those that offer identical products, may try to ______, or agree on a price.

collude.

How is economies of scale reflected on a graph?

curve, downward slope

In monopolistic competition, manu firms offer products that _________ ___________.

differ slightly.

Competition forces firms to be _________ and supply the product at the lowest possible price.

efficient

What are target discounts?

like student discounts and manufactures rebate offers, are one form of price discrimination.

How is price determined?

market demand and supply

Does a perfect competitor have market power?

no

Each farm is so small relative to the market that each has ____ impact on the market price.

no

In perfect competition there is ______ competition

no

What does monopoly mean in greek?

one seller

In perfect competition, individual buyers and sellers have no control over the _________.

price

Who can price discrimination be used?

price discrimination is a feature of monopoly, it can be practiced by any company with market power.

With monopoly, consumer surplus _____ which is much smaller than commuter surplus with perfect competition..

shrinks

What does price discrimination require?

some market power, distinct customer groups, and difficult resale.

What are examples of Oligopoly industries?

steel, oil automobiles, breakfast cereals, and tobacco

A single firm will emerge from the competitive process as a sole _______ in the market due to economies of scale.

supplier. EX: electricity. The average cost per household declines as more and more households are wired into the system.

What is the ' competition' element of monopolistic competition?

that barrier to entry are so low that any short-run profit will attract new competitors, erasing profit in the long run.

What is market power?

the ability to control prices and total market output.

What is consumer surplus?

the difference between the total amount consumers are willing to pay for a given quantity for a good and what they actually pay.

What is price discrimination?

the division of customers not groups based on how much they will pay for a good.

What is the minimum efficient scale?

the lowest rate of output at which the firm takes full advantage of economies of scale. If a firms minimum efficient scale is relatively large compared to industry output, then only a few firms are needed to produce the total amount demanded in the market.

What is the extreme opposite of perfect competition?

the monopoly market structure

What is market structure?

Describes the important features of a market, including the number or buyers and sellers, the product's uniformity across suppliers, the ease of entry into the market, and the forms of competition among firms.

What can a market do once they establish a price?

Each firm is free to produce whatever quatintiy maximizes its prefect or minimizes its loss.

What is the most significant barrier to entry in Oligopolies?

Economies of scale

What are geographic monopolies?

In less-populated areas, natural monopolies include the only grocery store, movie theater, or restaurant for miles around. These are geographic monopolies for products sold in local markets.

What market structure do you think of when thinking of big firms and a market dominated by just a few firms?

Oligopoly

How does as monopolist face limited choice?

it can choose to set either output or price but not both.

What keeps firms form controlling prices and supply of important goods?

Government policies

What happens to firms that don't try to maximize profit?

The don't survive

A firm's decision about how much to supply depends on what?

The structure of the market.

A monopolized market has high _____ ____ ____.

Barriers to entry

What is excess capacity and what firms ares said to operated with it? Give examples,

Excess capacity means that a firm could lower its average cost by selling more. A monopolistic competition works with this. EX: gas stations, drugstores, banks, convenience stores, restaurants, motels, bookstores, and flower shops, funeral homes

Firms in an oligopoly are _____________.

Interdependent

What is an example of a Undifferentiated Oligopoly and what is it.

It sells a commodity such as ingot of steel or a barrel of oil. the product is identical or undifferentiated across producers.

What is an example of Differentiated Oligopoly and what is it

It sells products that differ across producers, such as Ford versus Toyota or General Food's Wheaties v. Corn Flakes.

Who has more power than does a business in any other market structure?

Monopolist

What market structure spends more on advertising and other promotional expenses to differentiate their products?

Monopolistic competition .

_______ _______ ,such as local electricity transmission, local phone service, or a city subway system, are regulated.

Natural monopolies.

Why are long lasting monopolies rare?

Profitable monopoly attracts competitors and substitutes.

What fires to control price, output, the entry of new firs, and the quality of service in industries in which monopoly appears inevitable or even desirable.

Regulation of natural monopolies.

What is barriers to entry?

Restrictions on the entry of new firms into an industry.

Technology and Barriers to entry?

Some Markets require a high degree of technological know-how. As a result, new entrepreneurs cannot easily enter these markets.

What is the control of essential resources?

Sometimes the source of monopoly power is a firm's control over some resource critical to production. EX: -Bauxite, zoo, diamonds.

What is the 'monopolistic element' to monopolistic competition?

That each firm has some control over its price. Because the products of deferent suppliers differ slightly, each firm's demand curve slopes downward.

What is Market power?

The ability of a firm to raise its price without losing all sales to rivals.

Can a monopolist go broke?

Yes

Monopolies form when ______ prevent firms from entering a market that has a single supplier.

barrier

How can the government become a monopolist itself?

by outlawing competition. (liquor, lottery tickets, U.S postal service 'USPS')

What do antitrust send most of their time doing?

evaluating the impact of proposed mergers on market competition. (Microsoft)

What does oligopoly mean in greek?

few sellers

Monopolies can take advantage of their monopoly power and charge __________ prices.

high

Collusion and cartels are __________ in the United States.

illegal

Dereguation had __________ competition and ___________ consumers.

increased benefited EX: CAB

How are the terms industry and market used?

interchangeably

Price and quality demanded are __________ related.

inversely