Chapter 13: Monopolistic Competition and Oligopoly – Flashcards
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A firm in an oligopolistic market
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can set its price and output to maximize profits
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What attributes to the real differences in differentiating between goods and services?
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-functional features -design -materials
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The demand curve for a monopolistically competitive firm is
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downward-sloping
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An _______ is a market dominated by a few large producers of a homogeneous or differentiated product
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oligopoly
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In long-run equilibrium, monopolistically competitive firms
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will just break even and will make no economic profit
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Firms often merge, forming oligopolies, in order to
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-increase control over price -gain greater control over market supply -become a larger buyer of inputs
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Two types of market models that closely approximate many markets in the real world are
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monoplistic competition and oligopoly
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In the short run, monopolistically competitive firms maximize profits or minimize losses by producing the output level where
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marginal revenue equals marginal cost
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Entry of new firms into monopolistically competitive industries is relatively easy because
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capital requirements are low
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When measuring industry concentration, the four-firm concentration ratio is the percentage ratio of total industry _______ for the four largest firms in an industry realitive to total industry sales
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sales
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Oligopolistic behavior implies that oligopolists prefer competition
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-through product development -through advertising
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Oligopolies have:
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fewer firms than monopolistic competition
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The equality of price and minimum average total cost yields technical ________ efficiency; the equality of price and marginal cost yields ________ efficiency
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productive, allcoative
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Multiple models are used to study oligopolies because oligopolies
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-encompass a greater range and diversity of market situations -cannot estimate both their demand and marginal revenue curves due to rivals' reactions
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Firms in an oligopoly may produce
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either a homogeneous product or a differentiated product
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Productive efficiency in monoploistically competitive markets does not occur in the long run because firms set the price
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on the demand curve where MR=MC to maximize economic profit, making output less than optimal for society's perspective
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______ means illegal cooperation with rivals
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collusion
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To achieve economic efficiency that reduces the number of resources used but increases the number of socially optimal outputs requires a triple equality. The three components that must be equal are?
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-marginal cost -minimum average total cost -price
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Three models used to study pricing and output by oligopolies are
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-the kinked-demand curve model -price leadership model -collusive pricing model
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Compared to monopolies, oligopolies
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give the appearance of increased competition
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What does a demand curve look like for an oligopolist?
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it could be a straight line or kinked line
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Advertising increases efficiency by
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-facilitating the introduction of new products -lowering search costs for consumers
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What helps a product differentiate from another
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-varying degrees of customer service -more or less convenient locations -different physical characteristics
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A monoplistically competitive firm's demand curve is
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downward-sloping like the demand curve for a monopoly, not horizontal like those in purely competitive markets
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The benefits to oligopolists from collusion are:
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-it possible prohibits the entry of new rivals -it increases profits -it reduces price uncertainty
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Firms in monopolistic competition produce goods with:
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-varying degrees of customer service -slightly varying physical characteristics
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The study of how people behave in strategic situations is called ______ _______
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game theory
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Which of the following correctly describes the difference between products under pure competition versus products under monoplistic competition
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Standardized products are sold in pure competition but differentiated products are sold in monopolistic competition
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When the ______ is stable, oligopoly prices tend to be stable
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economy
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In the long-run equilibrium, monopolistically competitive firms
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will just break even and make no economic profit
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When plant and equipment are underused because firms are producing less than minimum-ATC output, this is known as having _______ _______
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-excess capacity, productive inefficiency
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In the long run, if a monopolistically competitive firm is earning normal profits (breaking even), then it should
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not exit the industry because both explicit and implicit costs are covered
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Which of the following are attributes that provide real differences in differentiating between goods and services?
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-function features -materials -design
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Which of the following are shortcomings of the kinked-demand analysis of oligopoly?
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-Oligopoly prices are not as rigid as the kinked-demand theory implies -The kinked-demand curve explains price inflexibility not price itself
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Managers can identify excess capacity by measuring the gap between
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the minimum average total cost output and the profit-maximizing output
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What are the typical characteristics of monopolistic competition
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-no collusion -independent -small market share
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The use of advertising by oligopolists
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-may increase or decrease prices -may increase or decrease competition
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Advertising may decrease economic efficiency if it
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increases monopoly power
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The Herfindahl index equals:
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the sum of the squared percentage market shares of all firms in an industry
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Oligopolies typically are not desirable because they
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do not achieve allocative efficiency because their price exceeds marginal cost
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In a non-collusive olgiopolistic industry, prices are generally stable for the following?
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-demand reasons -cost reasons
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What are the positive effects of large oligopolists not advertising?
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-a reduction of advertising would help lower prices and possible increase product output -the lack of manipulative info would reduce the chance of a firm becoming a monopoly
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Advertising can reduce efficiency by
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-providing misleading info -manipulating consumer preferences
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An olgopolistic firm's marginal revenue curve is made up of two segments if:
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its rivals match a price cut but ignore price increse
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Barriers to entry into an oligopoly most resemble those of a:
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pure monopoly
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Firms in an oligopoly may produce
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either a homogeneous product or a differentiated product
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Monopolistically competitive firms are not productively efficient because
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output is less than society's optimal level because a producer's average total cost per unit is not at its lowest possible cost
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A monopolistically competitve firm may be able to continue earning profit in the long run
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through further product differentiation
