AP Micro Monopolistic Competition & Oligopoly

many

in monopolistic competition, there are ______ sellers

free, low

in monopolistic competition, there is ________ entry and barriers are _______

downward sloping demand curve

in monopolistic competition each seller may set its own price for its own production, so it has a

unsustainable

in monopolistic competition, economic profits are ___________ in the long-run

allocative, productive

Neither __________ or ____________ efficiency will be achieved in the long-run in monopolistic competition

closer

monopolistic competition is ____________ to perfect competition than monopoly

oligopoly

few sellers, not always aggressive competition, 2nd most common market structure in the US

product differentiation

physical aspects (unbreakable bottle, nonstick surface, non-shrink, extra spicy), etc.

Location (gas station on a heavily travelled corner)

Intangible aspects (satisfaction guaranteed, reputation, services like free delivery)

between, elastic

for monopolistically competitive goods, a firm perceives a demand for its goods that is ________ monopoly and perfect competition, and since there are substitutes, the demand curve facing a monopolistically competitive firm is more _________ than that of a monopoly

perfectly competitive firm, monopoly

if a monopolistic competitor raises its prices, it will not lose as many customers as would a _______________, but it will lose more customers than a ___________ would

monopolistic competition demand curve

monopolistic competition in the short run

the firm should be able to earn profits in the short run

MR=MC

How are prices and profits determined in monopolistic competition in the short run?

firm makes a profit

firm makes a loss

long run, zero economic profit

monopolistic competitors can make an economic profit or loss in the short run, but in the ________, entry and exit will drive these firms towards a _______________ outcome

monopolistic competition long run

profits will be eliminated when new firms enter the market, demand for the original firm will decrease, the firm will produce decreased Q at a lower price, ATC = P (zero economic profits), at the profit-maximizing quantity, there are zero economic profits, demand is always tangent to ATC in the long run

not productively efficient

not allocatively efficient

economies of scale

in the long run, monopolistic competition produces in a region where ____________________ exist (declining portion of long-run ATC)

excess

both monopolies and monopolistic competition have ________ capacity in the long run, ATC is not minimized, so it has this

less

the allocative efficiency of a monopolistically competitive firm will be _____ than with a monopoly (price (or MB or demand) = MC)

lower, higher

the monopolistically competitive firm will produce a ________ quantity of a good and charge a ________ price than in perfect competition

does not

a monopolistically competitive firm _______ have productive or allocative efficiency in the short run (making economic profits & losses) OR in the long run (zero profits)

advertising

stresses how one firm’s products differ from others in the same market

inelastic

advertising causes a firm’s perceived demand curve to become more ________

increase (shift to the right)

advertising causes demand to __________

collusion

firms act together like a monopoly which holds down industry output, charges a higher price, divides profit among themselves

cartel

a group of firms that have a formal agreement to collude to produce the monopoly output and sell at the monopoly price

cheat

cartels are difficult to maintain because members have incentive to

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

the prisoner’s dilemma

shows the gains from cooperation are larger than the rewards from pursuing self-interest

nash equilbirium

a stable state of a system that involves several interacting participants in which no participant can gain by a change of strategy as long as all the other participants remain unchanged

dominant strategy

a strategy that is the best choice no matter what the other player does, it gives a higher payoff in every possible scenario, and a player can choose it without worrying about predicting the other player

interdependence

oligopolies recognize their mutual

joint profit

because oligopolies pursue their own self-interest, they do not end up reaching the monopoly outcome and maximize their

raise production, larger

each oligopolist is tempted to _________ and capture a _________ market share, but as each of them does this, total production rises and price falls

less, greater

oligopoly price is ____ than the monopoly price but _______ than the price in perfect competition (which equals MC)

if the only two firms in an industry successfully collude, the price of the product will be above the MC of production (on demand curve)

price war

a competitive exchange among rival companies who lower the price points on their products in a strategic attempt to undercut one another and capture greater market share - may be used to increase revenue in the short term, or it may be employed as a longer-term strategy

rival firms

will match price decreases but not match price increases

price leadership

occurs when a leading firm exerts enough influence in the market that it can effectively determine the price of goods or services, common in oligopolies, rivals often have to follow the price leader if they want to hold on to their market share

monopolistic competition

television is generally