Into to MicroEcon Unit 10: Monopolistic Competition and Oligopoly

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10 Terms

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Monopolistic Competition

A market structure with many firms selling products that are substitutes but different enough that each firm's demand curve slopes downward; firm entry is relatively easy.

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Characteristics of Monopolistic Competition

-Price makers

-Barriers to entry are low

-Enough sellers that they behave competitively

-Can act independently or interdependently

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Product Differentiation

-Physical differences

-Location

-Services

-Product Image

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Excess Capacity

The difference between a firm's profit-maximizing quantity and the quantity that minimizes average cost.

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Oligopoly

A market structure characterized by a few firms whose behavior is interdependent.

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Undifferentiated Oligopoly

An oligopoly that sells a commodity or a product that does not differ across suppliers, such as an ingot of steel or a barrel of oil.

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Differentiated Oligopoly

An oligopoly that sells products that differ across suppliers, such as automobiles or breakfast cereal.

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Collusion

An agreement among firms to increase economic profit by dividing the market or fixing the prices.

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Cartel

A group of firms that agree to coordinate the production and pricing decisions to act like a monopolist. Ex: OPEC

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Price Leader

A firm whose price is adopted by other firms in the industry.