question

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

answer

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?

answer

-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?

answer

-function features -materials -design

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Which of the following are shortcomings of the kinked-demand analysis of oligopoly?

answer

-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?

answer

-demand reasons -cost reasons

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What are the positive effects of large oligopolists not advertising?

answer

-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

answer

through further product differentiation

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Monopolistic Competiton

answer

Market Structure in which barriers to entry are low and many firms compete by selling similar but not identical Products

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A monopolistic competitive firm must __ its prices to sell more, so its marginal revenue curve will slope __ and be __ its demand curve

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cut, downward, below

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Average revenue is always equal to

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Price

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Output effect

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Firm cuts prices it will be able to sell more units

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Price effect

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Cuts prices sell more units, however it will receive less money for each unit that it could have sold at a higher price

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Every firm that has the ability to affect the price of a good/service will have

answer

A marginal revenue curve that is below its demand curve

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Monopolistic competitive firm maximizes profits in the short run

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-produce at level where Marginal revenue and cost are equal -demand curve determines the price at the profit maximizing level of output -Profit = (P-ATC) x Q -Monopolistic competitive firm will max profits where P>MC

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What happens to profits in the long run?

answer

If one firm continues to make an economic profit new firms likely to enter the market

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How does the entrance of new firms affect the profit of existing firms?

answer

-Shift demand to left as consumers buy fewer goods at the previous price, more elastic consumers have additional producers -Over time demand curve shift to a point of tangency with the ATC curve, break even -exit if suffer economic losses in long run, shift back to right to break even

question

Is Zero economic profit inevitable in the long run?

answer

-Differentiate or sell at lower costs, other firms will duplicate -inevitable return to zero holds if firm stands still and fails to lower costs/differentiate -Firms must convince consumers greater value of their product over competitors to maintain profit

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Long run equilibrium, monopolistic vs competitive

answer

monopolistic price higher than marginal cost, do not prodce at min ATC. Eliminate economic profits

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Excess capacity

answer

Monopolistically competitive firms, increase capacity they could produce at a lower average cost

question

Difference between perfect and monopolistic competition

answer

Downward slopes of the demand curve

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Firms differentiate to appeal to consumers, consumers thus

answer

Trade off paying a price that is >MC and not at min ATC for the benefits of receiving a differentiated product more closesly aligned with their tastes

question

Marketing

answer

activities necessary for a firm to sell a product to consumer -What produce, how advertise, where distribute

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Brand management

answer

Actions of firm to maintain differentiation of product over time, stave off duplication efforts

question

Advertising

answer

Make products more desirable than competitors, shift demand to right and make more inelastic Increases firms costs, cost/benefit study to determine effect on profit

question

Trademark

answer

legal protection against other firms using products name - chance becomes so widely used for type of product no longer associated with company -difficult to enforce, internationally

question

What makes a firm successful?

answer

Differentiate product and produce at lower ATC creates value for customers other factors- overhead costs/consumer preferences may change Sheer chance effects profitability

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