econ

In a contestable market,

entry occurs when prices rise above average total costs

A monopoly

produces less output than a competitive industry, ceteris paribus.

The marginal revenue of a monopolist falls below price because the firm

confronts a downward-sloping demand curve

The marginal revenue curve is below the demand curve

if a firm must lower its price to sell additional output

Monopolists set prices

at the output where marginal revenue equals marginal cost.

Market power is

the ability to alter the market price of a good or service.

Suppose a monopoly firm produces bicycles and can sell 10 bicycles per month at a price of $700 per bicycle. To increase sales by one bicycle per month, the monopolist must lower the price of its bicycles by $50 to $650 per bicycle. The marginal revenue of the eleventh bicycle is

$150.

The price charged by a profit-maximizing monopolist occurs

at a price on the demand curve above the intersection where MR = MC.

If a monopolist is producing a level of output where MR exceeds MC, then it should

increase its output.

If a monopolist is producing a level of output where MR is less than MC, then it should

lower its output.

The demand curve facing an oligopoly firm is kinked because

it is most likely that rivals will match price cuts but not price increases.

If an oligopoly market is contestable and new firms enter, then the

market power of the former oligopolists will be reduced.

A contestable market is

an imperfectly competitive situation that is subject to entry.

A payoff matrix shows

the risks and rewards of alternative decision options.

Market power leads to market failure when it results in

decreased market output.

Collusion is undesirable and illegal because

resources are misallocated, and the level of output is restricted.

The kinked demand curve explains the observation that in oligopoly markets

prices may not change even in the face of cost increases.

The demand curve will be kinked if rival oligopolists

match price reductions but not price increases.

The kinked demand curve explains

the consequences of the interdependent behavior of oligopolists.

If a firm is producing at the kink in its demand curve and it decides to increase its price, then according to the kinked demand model,

it will lose market share to the firms that do not follow the price increase.

Price leadership

helps achieve monopoly profit for the market.

Price leadership

permits oligopolistic firms in a given market to coordinate marketwide price changes.

The pricing strategy in which one firm is allowed to establish the market price for all firms in the market is called

price leadership.

An industry's market structure refers to

the number and size of the firms in the industry.

In monopolistic competition, a firm

has a downward-sloping demand curve.

If there are many firms in an industry producing goods that are similar but slightly different, this is an example of

monopolistic competition.

A concentration ratio measures the

proportion of total industry output produced by the largest firms.

A _________blank measures the proportion of total industry output produced by the largest firms.

concentration ratio

The main difference between perfect competition and monopolistic competition is the

degree of product differentiation.

Monopolistic competition results in allocative

inefficiency and productive inefficiency.

In monopolistic competition, a firm

uses nonprice competition.

The demand curve faced by a monopolistically competitive firm is

downward sloping.

Entry into a market characterized by monopolistic competition is generally

very easy because few barriers exist.

Monopolistically competitive firms have a "monopoly" element to them because

• brand loyalty gives them a captive audience.

The long run is

a period long enough for all inputs to be variable.

The marginal cost curve

is the short-run supply curve for a competitive firm at prices above the AVC curve.

Competitive firms cannot individually affect market price because

their individual production is insignificant relative to the production of the industry.

A perfectly competitive firm is a price taker because

A perfectly competitive firm is a price taker because

Normal profit

includes the full opportunity cost of the resources used by the firm.

Economic profit is

less than accounting profit by the amount of implicit cost.

The shutdown point occurs where price equals

minimum AVC.

Profit

• is the difference between total revenue and total cost.

Market structure is determined by the

number and relative size of the firms in an industry.