Unit 4: Imperfect competition Ap Exam review

What are the three markets in a imperfect competition

Monopoly, Monopolistic competition, Oligopily

In imperfect competition when it comes to price, what roles do firms have

They are price setters

In a monopoly do barriers to entry exist

Yes, they are highly present and firms are barred from entering the market

What is a geographical monopoly

When a business has no competition in a certain area meaning they can charge different prices

What is a natural monopoly

When the industry features extreme economies of scale that one firm can serve the market more cheaply than any other firm

On a demand curve in a monopoly, where does the monopoly operate

On the elastic portion because it is the only firm in the market, and it wants to maximize profits and because MR would be negative and TR would be lower and Tc would continue to increase

Why is the demand MR curve below the Demand curve in a monopoly

Because to sell more output the monopolist must lower its price on each additional unit, and each previous unit

What is the profit maximization rule for monoplies

Where marginal reveune=Marginal cost

Why is a monopoly not productively efficent

because it doesn’t produce at the minimum of the ATC

Why is a monopoly not allocatively efficent

because they under-allocate resources because the market has one seller that wants to produce less and price higher

What is deadweight loss

It exists in imperfect competition when a monopoly is not being allocatively efficent

Productively efficent point

MC=Min ATC

Allocatively efficent

MC=P

What is price discrimination

The ability of monopolists to charge consumers different prices for the same good or service to maximize profits

To price discriminate what conditions must occur

1. The firm must be a price setter or some degree of market power

2. The firm must prevent reselling

3. The firm must be able to differentiate customers either individually or by groups

When a firm perfectly price discriminates what happens to DWL and CS

They both become Producer surplus

What does a monopoly graph look like?

What does a natural monopoly graph look like

To reduce the DWL that is present in a natural monopoly what does the government do

They regulate the natural monopoly by subsidizing the monpoly

What is monopolistic competition

It is a market type with a multitude of different firms, similar to perfect comp, however, each firm has a slightly differentiated good

Is it possible to earn economic profit in the short run or long run in a monopolistic competition

In the short run yet, but in the long run, no

How is the demand curve different between monopolistic competition and a monopoly

The monopolys demand cruve is less elastic as their is only one firm in the market, while a monopolistic competitions demand curve is more elastic due to the presence of other firms

What do monopolistic competition firms do to gain an edge over each other

They advertise, however, they have to give up some of their resources

What is excess capacity

In the long run, monopolistically competitive markets do not produce enough to achieve the lowest ATC possible and therefore produce less output

What is an oligopoly

When a few firms dominate the market

How do firms act in a oligopoly

They act interdependently meaning that the firms best choices are influenced by one another decisions

What do oligopolies have the incentive to do

Collude to set prices and production

If Oligopolies are left unregulated, what could occur

A cartel which is a formal agreement to not compete but instead behave as a monopoly by determining price and quantity together

Who regulates oligopolies

The government

What is a natural limitation of forming a cartel

Firms within the cartel have an incentive to cheat to maximize profits