Microeconomics Ch 16 17 – Flashcards
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Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year. In the long run, the demand for any one firm's dry-cleaning services will _____ as more firms enter the industry, causing profits to _____.
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decrease; fall to zero
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If the Boston donut market is monopolistically competitive, consumers in Boston will see less diversity in the donuts offered over time.
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False
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Under monopolistic competition, the demand curve faced by an individual firm is downward sloping because:
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the product of each seller is differentiated from that of others.
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If firms in a monopolistically competitive market are earning positive profits, then
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new firms will enter the market.
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Monopolistic competition differs from perfect competition because in monopolistically competitive markets
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each of the sellers offers a somewhat different product.
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In the long run, a firm in a perfectly competitive market operates
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at its efficient scale and a monopolistically competitive firm operates with excess capacity.
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Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit?
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Demand and average total cost
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In a monopolistically competitive industry, firms set price
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above marginal cost since each firm is a price setter.
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In a monopolistically competitive market,
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firms may enter even though they will earn zero economic profit in the long run.
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To maximize its profit, a monopolistically competitive firm
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chooses its quantity and price, just as a monopoly does.
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Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by:
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interdependence
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In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to
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confess
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When oligopoly firms collude to raise prices:
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Each firm benefits, but society loses.
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The equilibrium price in a market characterized by oligopoly is
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lower than in monopoly markets and higher than in perfectly competitive markets.
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Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, it
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is always in their best interest to leave their quantities supplied unchanged.
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One key difference between an oligopoly market and a competitive market is that oligopolistic firms
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can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make.
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The prisoners' dilemma is an important game to study because
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it identifies the fundamental difficulty in maintaining cooperative agreements.
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When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have
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a Nash equilibrium.
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In a two-person repeated game, a tit-for-tat strategy starts with
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cooperation and then each player mimics the other player's last move.
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In markets characterized by oligopoly,
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the oligopolists earn the highest profit when they cooperate and behave like a monopolist.
