ECON 150 Chp. 13 Extra Credit
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Entry of new firms into monopolistically competitive is relatively easy because
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Capital requirements are low
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_________ __________ is a market characterized by having many sellers, differentiated products, and with ease of entry and exit from an industry.
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Monopolistic competition
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A(n) _______ is a market dominated by a few large producers of a homogeneous or differentiated product.
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Oligopoly
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A monopolistically competitive firm's demand curve is
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highly but not perfectly elastic
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A good way to describe _______ competition is that it mixes a small amount of monopoly power with a large amount of competition, while _______ blends a large amount of monopoly power, a small amount of competition through entry, and considerable rivalry among firms.
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Monopoly Oligopoly
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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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Oligopolies have
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fewer firms than monopolistic competition
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If a monopolistically competitive firm is producing where its marginal revenue is less than its marginal cost, then the firm
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should produce less output to increase profits or reduce losses.
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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 which of the following? Price Marginal cost Average variable cost Average fixed cost Minimum average total cost Minimum marginal revenue
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Price Marginal cost Minimum average total cost
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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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Firms in monoplistic competition produce goods with
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Slightly varying physical characteristics Varying degrees of customer service
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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 Allocative
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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 relative to total industry sales.
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Sales
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Which of the following is not an example of how products can differ in terms of service? Some stores may charge different prices. The workers in some stores may be more courteous. Some stores may provide faster service. The clerks in some store may be more helpful. Some stores may have a better exchange policy.
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Some stores may charge different prices.
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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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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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When four or five auto parts stores serve a medium-sized town this can be considered a(n)
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Oligopoly
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An oligopolistic firm's marginal revenue curve is made up of two segments if:
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its rivals match a price cut but ignore a price increase
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Which of the following are typical characteristics of monoplistic competition? Few firms No collusion Small market share Mutual interdependence Independent
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No collusion Small market share Independent
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Non-______ competition is competition illustrated through product differentiation and advertising.
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Price
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Three models used to study pricing and output by oligopolies are
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Price leadership model Kinked-demand curve model Collusive pricing model
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It is reasonable to assume that the demand of a non-colluding oligopolist facing a kinked-demand curve is less _____ or even _____ below the going price.
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Elastic Inelastic
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Oligopolistic behavior implies that oligopolists prefer competition
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Through advertising Through product development
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The benefits to oligopolists from collusion are:
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It possibly prohibits the entry of new rivals It reduces price uncertainty It increases profits
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Which of the following best exemplifies a firm with excess capacity? A convenience store with all its gas pumps in use and customers waiting to gas. A fast-food restaurant where customers never have to wait to place an order. An auto plant running three full shifts per day to meet customer orders. A hotel with no rooms for the night.
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A fast-food restaurant where customers never have to wait to place an order.
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When firms in an oligopoly _______, their payoffs will be greater than if they did not.
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Collude
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A monopolistically competitive firm's demand curve is
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Highly but not perfectly elastic
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Advertising increases efficiency by
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Lowering search costs for consumers. Facilitating the introduction of new products
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By changing their advertising and _______ strategies, firms competing in an oligopoly can affect profits and influence the profits of rivals.
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Pricing
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A type of implicit understanding used by oligopolists to coordinate prices without engaging in outright collusion is known as ______ _____.
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Price leadership
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Entry to and exit from monopolistically competitive industries is
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Relatively easy
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Firms in monoplistic competition produce goods with:
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Slightly varying physical characteristics Varying degrees of customer service
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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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_________ means illegal cooperation with rivals.
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Collusion
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Product differentiation is when the goods sold by the firms in an industry
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Have different qualities
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How do price leaders make price adjustments?
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By establishing a price that discourages new entrants into the industry. Infrequently, due to the uncertainty in rivals' response to the these price changes. By communicating impending price adjustments to the industry.
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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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During macroeconomic instability, the lack of determination of price rigidity is best described by:
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The short comings of the kinked-demand curve of oligopolistic firms
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Multiple models are used to study oligopolies because oligopolies
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Cannot estimate both their demand and marginal revenue curves due to rivals' reactions. Encompass a greater range and diversity of market situations.
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Allocative efficiency in monopolistically competitive markets does not occur in the long run because firms will set the price where
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ATC= demand to obtain a normal profit as consumers demand more of that product and forgo other products reducing optimal societal output.
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Compared to pure monopolies, oligopolies
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may be less desirable because they are not regulated by government to protect consumers.
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When the ______ is stable, oligopoly prices tend to be stable.
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Economy
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For a business to secure a convenient store location even if it means higher prices and less selection is a form of
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Product differentiation
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When members of an oligopoly react to price changes by a dominant firm, the ______ ______ model is most applicable.
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Price leadership
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When firms in an oligopoly ______, their payoffs will be greater than if they did not.
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Collude
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Entry into monopolistically competitive industries is
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Easy compared to industries in an oligopoly.
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No single model is used to gain insights into oligopolistic pricing and output because of
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Diversity and complications from interdependence.
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A monoplistically competitive firm's demand curve is
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Highly but not perfectly elastic
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Which of the following are shortcomings of the kinked-demand analysis of oligopoly? During macroeconomic instability, oligopoly prices are much more rigid than the kinked-demand theory implies. The kinked-demand curve explains price inflexibility but not price itself. During macroeconomic instability, oligopoly prices are not as rigid as the kinked-demand theory implies. During macroeconomic stability, oligopoly prices are not as rigid as the kinked-demand theory implies. The kinked-demand curve explains price but not price inflexibility.
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The kinked-demand curve explains price inflexibility but not price itself. During macroeconomic instability, oligopoly prices are not as rigid as the kinked-demand theory implies.
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Advertising may decrease economic efficiency if it
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Increases monopoly power
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The use of advertising by oligopolists
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May increase or decrease competition. May increase or decrease prices.
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What are the negative effects if large oligopolists do not advertise?
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Consumers would be unaware of important new products. Customers might purchase less efficient products that cost more.
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The ability of monopolistically competitive firms to engage in _______ competition makes the market situation more complex because of differentiated product differences and advertising.
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Nonprice
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The price at convenience stores for a bottle of soda is almost always higher than at supermarkets owing to the price customers are willing to pay to make their purchase at a more convenient ________.
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Location
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Which of the following is a model used to examine oligopolistic pricing?
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The kinked-demand curve model
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Allocative efficiency is achieved in the short run when the equality of which of the following occurs?
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P=MC
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In a non-collusive oligopolistic industry, prices are generally stable for the following? Cost reasons Supply reasons Cartel reasons Demand reasons Elasticity reasons
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Cost reasons Demand reasons
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Advertising can reduce efficiency by
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Providing misleading information Manipulating consumer preferences
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When advertising is self-canceling, then it
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Decreases efficiency because demand remains unchanged but costs increase.
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In order for a monopolistically competitive firm to maximize profits, it must juggle which of the following factors? The channels of distribution The selling price of the product The strategic business units needed The level of advertising The variety of product
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The selling price of the product The level of advertising The variety of product
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A monopolistic competitor's demand curve is
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More elastic than that of a pure monopoly but less elastic than that of a firm in pure competition.
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The ability of monopolistically competitive firms to engage in ___________ competition makes the market situation more complex because of differentiated product differences and advertising.
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Nonprice
