Topic 11: Monopolistic

Event; Demand will: ; Elasticity of Demand will: The number of other restaurants in the are increases.; decrease; increase Steve institutes a frequent-diner program whereby a customer who visits five times receives a sixth meal free. increase; decrease The number of consumers in the area increases. increase; not change

Determine how each of the events listed below would affect the demand curve for food at Steve's Shrimp Shack, a seafood restaurant operating in a monopolistically competitive restaurant market. The demand could increase (rightward shift) or decrease (leftward shift), and it also could become more or less elastic. Event; Demand will: ; Elasticity of Demand will: The number of other restaurants in the are increases. Steve institutes a frequent-diner program whereby a customer who visits five times receives a sixth meal free. The number of consumers in the area increases.

How much are consumers willing to pay for the 4,400th pair of sunglasses? $120 How much must suppliers charge for the 4,400th pair of sunglasses? $40 What is the difference between the marginal benefit of the 4,400th pair of sunglasses and the marginal cost of that pair of sunglasses? $80

Suppose the table below represents the demand and supply schedule in the market for sunglasses. Price; Quantity Demanded (pairs); Quantity Supplied (pairs) $140; 4,000; 6,400 120; 4,400; 6,000 100; 4,800; 5,600 80; 5,200; 5,200 60; 5,600; 4,800 40; 6,000; 4,400 20, 6,400; 4,000 How much are consumers willing to pay for the 4,400th pair of sunglasses? How much must suppliers charge for the 4,400th pair of sunglasses? What is the difference between the marginal benefit of the 4,400th pair of sunglasses and the marginal cost of that pair of sunglasses?

The top four firms in the retail surfboard industry maintain total sales of $8 million per year. If the entire retail surfboard industry sells $10 million worth of output, then the four-firm concentration ratio is ___%.

($8/$10) x 100% = 80%

Which of the following describes a cartel?

A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition.

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

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

Which of the following tells us the profit per unit?

Profit per Unit = Price - Average Total Cost (π/Q) = P - ATC

Which of the following is not a characteristic of monopolistic competition?

The products are standardized.

Games can have more than one Nash equilibrium.

True

Profit maximization implies that monopolistically competitive firms should expand production up to the point where the marginal revenue equals the marginal cost.

True

A situation in which a particular strategy yields the highest payoff, regardless of the other player's strategy, is:

a dominant strategy.

For each of the markets listed below, determine whether the market can reasonably be described as monopolistically competitive. a. Satellite radio b. AM or FM radio c. Common salt c. Clothing e. Shampoo

a. not monopolistically competitive b. monopolistically competitive c. not monopolistically competitive d. monopolistically competitive e. monopolistically competitive

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

deadweight

The efficiency loss resulting from a monopolistically competitive market is called:

deadweight loss.

The strategy of distinguishing one firm's product from the competing products of other firms is called product _____.

differentiation

In a monopolistically competitive market, each firm produces a differentiated and unique product, so firms face _____-sloping demand curves.

downward

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

entry; exit

A concentration ratio that measures the percentage of sales by the four largest firms in a particular industry is called the _____.

four-firm concentration ratio

The mutual interdependence observed among oligopolistic firms is often studied using the tools of _____ theory.

game

The monopolistically competitive firm produces _____ output than would be productively efficient.

lower

To maximize profits, a cartel should produce a level of output where the:

marginal revenue equals the marginal cost.

The percentage of total market sales accruing to one specific firm is called the _____ share.

market

In a _____ competitive market, consumers can usually find exactly what they are looking for based on their preferences and budgets.

monopolistic

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

monopolistically

Producers operating in oligopolistic markets generate:

normal profits and even losses in the short run.

Monopolistic competition and a monopoly are:

not the same market structure.

In an _____ market, there are relatively few firms and the product is either standardized or differentiated.

oligopoly

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.

The strategy of distinguishing one firm's product from the competing products of other firms is called _____ differentiation.

product

The profit maximization rule states that a firm should produce a level of output where the marginal _____ equals the marginal cost

revenue

Given that oligopolistic firms face other competitors in their markets, their behavior must definitely be _____.

strategic

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

variety

The characteristics of an oligopoly competitive market are:

a few large producers. either standardized or differentiated products. producers who are price markers. producers who behave strategically when making decisions related to the features, prices, and advertising of their products. operation in industries with extensive entry barriers.

Monopolistically competitive markets:

combine characteristics of competitive markets and pure monopolies.

A number of entry barriers are present in oligopolistic markets, including:

control of the resources needed to produce output. economies of scale that may allow only a small number of firms to operate in a market. patents. pricing strategies. significant costs of capital.

A concentration index that measures the sum of the squared percentage of sales from all firms in a particular industry is called

The Herfindahl-Hirschman Index (HHI).

In monopolistically competitive markets, which of the following allow consumers to be more responsive to price changes?

The availability of close substitutes.

Which of the following aspects of oligopolistic firms does game theory help us study?

Their strategic behavior

Monopoly is a market structure characterized by:

a good or service for which there are no close substitutes. a market with barriers to entry. a single seller. the firm having significant price control.

When the marginal benefit of the last unit equals the marginal cost of the last unit, production is _____ efficient.

allocatively

Suppose Carl's Candies sells 150 boxes of candy for $4 each. The total fixed cost of the 150 boxes is $150, and the average variable cost of the 150 boxes is $2 per box. Carl's earns

an economic profit of $1 per box.

Anti trust laws:

are designed to prevent firms from engaging in behaviors that would lessen competition.

Zero _____ profit is when the firm's revenue equals its operating cost without a loss.

economic

When monopolistically competitive firms follow the marginal revenue and the marginal cost rule, the result can be _____ profits, _____ profits, or even losses, depending on market condition.

economic; normal

For each of the markets listed below, determine whether the market can reasonably be described as oligopolistic. a. Satellite televison b. Hotels c. Tomatoes d. Crude oil

a. oligopolistic b. not oligopolistic c. not oligopolistic d. oligopolistic

In the presence of _____ profits, firms enter a monopolistically competitive market until the market reaches the point at which the firms are generating a _____ profit; then entry stops, and the market settles into its _____-run equilibrium.

economic; normal; long

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

monopolistically; consumers

A person who invest the ability to time travel will likely operate at a _____, because there would be no substitutes and entering that market would be difficult for anyone else.

monopoly

(P - ATC) x Q equals _____.

profit

Which of the following describes collusion?

A situation in which decision makers coordinate their actions to achieve a desired outcome.

Monopolistic competition is a market characterized by:

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

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

collusion.