Oligopoly & Mono. Comp. Practice
Monopolistic competition means
many firms producing differentiated products
The monopolistically competitive seller maximizes profit by producing at the point where
marginal revenue = marginal cost
In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits
may be either equal to ATC, less than ATC, or more than ATC.
Monopolistically competitive firms
may realize either profits or losses in the short run but realize normal profits in the long run.
The demand curve of a monopolistically competitive producer is
more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.
Refer to the diagram. If all monopolistically competitive firms in the industry have profit circumstances similar to the firm shown above
new firms will enter the industry.
suppose that an industry is characterized by a few firms and price leadership. We would expect that
price would exceed both marginal cost and average total cost
Refer to the data. Suppose that enforcement of antitrust laws resulted in any firm in this industry with market share above 20 percent to be split into two firms, with each having equal market share. That would cause this industry to (#18)
remain an oligopoly
Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except
solitaire
Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm concentration ratio and the Herfindahl index would be (17)
90 percent and 2,200, respectively.
Refer to the diagrams, which pertain to monopolistically competitive firms. A short-run equilibrium entailing economic profits is shown by (#14)
diagram b only
Refer to the diagrams, which pertain to monopolistically competitive firms. Short-run equilibrium entailing economic loss is shown by (#13 Oligopoly & Mono. Comp. Practice)
diagram c only.
The mutual interdependence that characterizes oligopoly arises because
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
In the United States cartels are
in violation of the antitrust laws.
Cartels are difficult to maintain in the long run because
individual members may find it profitable to cheat on agreements
Refer to the diagram. The monopolistically competitive firm shown (#11 Oligopoly & Mono. Comp. Practice)
is realizing an economic profit.
the monopolistically competitive seller's demand curve will become more elastic the
larger the number of competitors
antitrust laws
laws that prevent monopolies and promote competition and fairness
Refer to the diagram for a non collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, then the firm's demand curve will be (moving from left to right) (25)
D2ED1.
Refer to the diagram for a non collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. Which of the following statements is correct?
Demand curve D1 assumes that rivals will match any price change initiated by this oligopolist.
Refer to the diagram for a non collusive oligopolist. We assume that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, the firm's marginal revenue curve will be (moving from left to right)
MR2abMR1
Oligopolistic industries are characterized by
a few dominant firms and substantial entry barriers.
refer to the diagram. In short-run equilibrium, the monopolistically competitive firm shown will set its price... (#10 Oligopoly & Mono. Comp. Practice)
above ATC
In the short run, a profit-maximizing monopolistically competitive firm sets it price
above marginal cost
Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Beta commits to a high-price policy, Alpha will gain the largest profit by
adopting a low-price policy.
Nonprice competition refers to
advertising, product promotion, and changes in the real or perceived characteristics of a product.
OPEC provides an example of
an international cartel.
The kinked-demand curve of an oligopolist is based on the assumption that
competitors will follow a price cut but ignore a price increase.
Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its
demand curve as kinked, being steeper below the going price than above.
Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms follow a high-price policy, (19)
each will realize a $20 million profit.
The kinked-demand curve model helps to explain price rigidity because
there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits
will be equal to ATC.
