Economics Quiz #4 serge version

What is a Nash Equilibrium?

It's a situation where no player can do better by changing their strategy if the other players keep their strategies the same.

Where is this monopolistically competitive firm’s economic loss?

At the profit-maximizing quantity (where MR=MC), the loss is the area between the price (DARP) and ATC.

What does it mean for a firm to have a dominant strategy?

It means the firm has one best choice no matter what the other firm does.

Why do oligopolies exist?

Because there are high barriers that make it hard for new firms to enter the market.

How do price and quantity in an imperfect market compare to a perfect market?

Price is higher, and quantity is lower in an imperfect market.

How many firms are there in an oligopoly?

A few, usually less than 10.

Where is the efficient quantity for monopoly or monopolistic firms?

It's the quantity at the lowest point of ATC.

Where is minimum ATC?

Where the ATC curve touches the MC curve.

Why are monopolies and monopolistically competitive firms not allocatively efficient?

Because the price (P) is higher than the marginal cost (MC).

When is a firm allocatively efficient?

When the price (P) equals the marginal cost (MC).

Why do natural monopolies exist?

Because it’s too expensive for other firms to enter the market.

What is the difference between monopolistically competitive markets and perfectly competitive markets?

In monopolistically competitive markets, products are slightly different, while in perfectly competitive markets, they’re identical.

Do monopolistic firms have a high or low barrier to entry?

Low barriers to entry.

What happens in the long run if a monopolistically competitive firm loses money?

Firms leave the market, so demand increases for the remaining firms until they break even.

How does demand elasticity change in the long run if a monopolistically competitive firm is losing money?

The demand curve becomes less elastic (firms have fewer substitutes).

How would you explain an oligopoly firm that does not have a dominant strategy?

The best choice for one firm depends on what the other firm does.

Where is the profit-maximizing quantity?

Where marginal revenue (MR) equals marginal cost (MC).

What happens to ATC when a firm breaks even?

The price equals the average total cost (ATC).

What is a cartel?

A group of firms that agree to work together to reduce competition.

What is antitrust policy?

Rules to stop companies from becoming monopolies and harming competition.

What is the difference between economic profit and accounting profit?

Economic profit considers both explicit and implicit costs, while accounting profit only considers explicit costs.

Why do firms in a perfectly competitive market earn zero economic profit in the long run?

Because new firms enter if profits exist, driving prices down until firms break even.

What is price discrimination?

When a firm charges different prices to different consumers for the same product, based on their willingness to pay.

What is game theory?

The study of how firms make decisions when their profits depend on what other firms do.

What is a kinked demand curve?

A demand curve in an oligopoly where price increases lead to a large drop in sales, but price decreases don’t increase sales much because competitors also lower their prices.