Micro Economics Practice set 11

What does monopolistic competition have in common with perfect competition?

A large number of firms and freedom of entry and exit

Duopoly is

A two-firm oligopoly

A group of firms action together to limit output , raise price, and increase economic profit is called a

Cartel

The concepts of mutual interdependence and game theory illustrate that fact that firms competing in oligopoly

Consider the actions of rivals before changing the price of their product

Perfect Competition is characterized by all of the following except...

Considerable advertising by individual firms

What is the difference between perfect competition and monopolistic competition??

In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.

One characteristic of monopolistic competition is that is has

Large barriers to entry

A market with a large number of sellers

Might be monopolistically competitive or perfectly competitive market

1.large number of firms compete 2.Each firm produces a differentiated product 3.Firms are free to enter and exit

Monopolistic Competition

If firms in an oligopoly industry consistently cut their price to sell more output, what price and output will result?

The competitive price and output

Product differentiation allows a firm to compete with another firm on the basis of

The level of output and the price

Which of the following is an example of natural monopoly?

The local water company

A monopoly produces a product and there barriers to entry in the market

With no close substitutes; are

A major characteristic of a monopoly is that

A barrier to entry keeps out competitors

A monopoly is

Able to set the price for its product

The prisoner's dilemma is similar to the problem faced by firms in an oligopoly in the United States because

Mutual interdependence exists, and collusion is illegal in the United States, so the firms cannot legally communicate.

A natural monopoly exists when

One firm can supply an entire market at a lower average total cost than can two or more firms

The fact that firms in oligopoly are interdependent means that

One firm's profitsare affected by other firms actions

In monopolistic competition, a firm can set the price for its product because of

Product differentiation