Microeconomics Ch 10

Imperfectly competitive

Firms and organizations that fall between the extremes of monopoly and perfect competition

Monopolistic competition

Many firms competing to sell similar but differentiated products

Oligopoly

When a few large firms have all or most of the sales in an industry

Differentiated product

A product that consumers perceive as distinctive in some way

What are some ways that a product can be diffrentiated?

* Physical aspects
* Location from which it sells
* Intangible aspects
* Perceptions

What does a perfectly competitive demand curve look like?

A perfectly competitive firm can sell what at the prevailing market price?

All the output it wishes

What does a monopolistic demand curve look like?

What does a monopoly have to do to sell more output?

Decrease the price it charges

What does a monopolistic competitor demand curve look like?

To maximize profits, a firm will choose a quantity where what equals what?

Marginal revenue = marginal cost

The monopolists demand curve is the ______ demand curve?

Market

T/F - the monopolistic competitors demand curve is not the market demand curve.

True

T/F - Monopolists have to fear competitors due to lack of barriers to entry

False, they don’t have to fear because of the many barriers to entry

If a monopolistic competitor makes economic profit, what can they expect?

For more firms to enter their market

What does a monopolistic demand curve look like when profit induces entry?

What does a monopolistic demand curve look like when loss induces exit?

T/F - in the short run economic profit or loss are both possible.

True

T/F - in the long run economic profit is possible.

False, economic profit is not possible

T/F - perfectly competitive markets are allocatively efficient.

True

T/F - monopolistic competition is not allocatively efficient.

True

T/F - if oligopolists work hard, they act similarly to perfect competitors.

True

T/F - oligopolists face barriers to entry similar to perfect competitors.

False, monopolies

What can oligopolists act like when they collude with each other?

Monopolies

Collusion

When firms act together to reduce output and keep prices high

How to firms collude with each other?

* Hold down industry output
* Charge a higher price
* Divide the profit among themselves

Game theory

A branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs based on what other players decide to do

Prisoner’s dilemma

A scenario in which the gains from cooperation are less than the rewards from pursing self-interest

Duopoly

An oligopoly with only two firms

What is a way to enforce cooperation within oligopolies and the prisoner’s dilemma?

Penalize those who don’t cooperate