Unit 4: Imperfect Competition

Unit 4:  Imperfect Competition  

1. Price control

2. Barriers to entry

3. Product differentiation

4. Number of firm

5. All of the above characteristics in the following Market structures

1. Perfect Competition

2. Monopoly

3. Monopolistic competition

4. Oligopoly

6.  Draw Demand and Marginal Revenue curves for Imperfectly Competitive Firms/Markets

7.  For the below Market monopolistically competitive firm

1. What is the profit max P and Q?

2. Shade area of economic loss/profit

3. Label consumer/producer surplus

4. Label deadweight loss

5. What happens to profits/losses in the long-run?  Explain.

8. Natural Monopoly

1. Draw a graph with: ATC, MC, MR, and D in a natural monopoly 

9. Geographic Monopoly

10. Government Monopoly 

11. Draw a firm/market curve in a monopolistic market structure with:

1. Draw a graph with: ATC, MC, MR, and D in a natural monopoly 

2. Profit max P and Q

3. Shade area of economic loss/profit

4. Label consumer/producer surplus

5. Label deadweight loss

6. Is this market allocatively/productively efficient?  Explain. 

      12.  Price discrimination

13. Draw a firm/market curve in a perfectly price discrimination monopolistic market structure with:

1. Draw a graph with: ATC, MC, MR, and D in a natural monopoly 

2. Profit max P and Q

3. Shade area of economic loss/profit

4. Label consumer/producer surplus

5. Label deadweight loss

6. Is this market allocatively/productively efficient?  Explain. 

14. Show a monopolistically competitive/firm market graph which shows economic profits being made.

1. Draw a graph with: ATC, MC, MR, and D in a natural monopoly 

2. Profit max P and Q

3. Shade area of economic loss/profit

4. Label consumer/producer surplus

5. Label deadweight loss

6. Is this market allocatively/productively efficient?  Explain.

7. What will happen in the long-run?

15. Show a monopolistically competitive/firm market graph in long-run equilibrium.

16.  Prisoner’s Dilemma

17.  Game theory

18.  Dominant strategy

19.  Nash equilibrium 

20.  Collusion

21.  Cartel 

Sample FRQs

MONOPOLY FRQ 

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer.

(a) Draw a correctly labeled graph for a monopoly and show each of the following.

(i) The profit-maximizing quantity, labeled Qm

(ii) The profit-maximizing price, labeled Pm

(b) Assume the monopoly now engages in perfect price discrimination. On your graph in part (b), show the profit-maximizing quantity for the price discriminating monopoly, labeled Qpd.

(c) Based on your answer to part (b), will a perfectly competitive market produce a larger, smaller, or the same quantity as the perfectly price discriminating monopoly? Explain.

Monopolistic Competition FRQ 

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer.

(a) Draw a correctly labeled graph showing a typical monopolistically competitive firm, Firm Z, in long-run equilibrium, and show each of the following.

(i) The profit-maximizing price, labeled P

(ii) The profit-maximizing quantity, labeled Q

(iii) The allocatively and productively efficient levels of output, labeled, Q1and Q2,, respectively

(b) Is firm Z making positive accounting profit? Explain.

(c) Suppose, over the long run, that the Gobble Company in a different industry continues to make significantly higher economic profit than Firm Z and most other firms in other industries. What must be true in order for the Gobble Company to make more economic profit than firms in other industries in the long run?

(d) Suppose that Firm Y raises the price of its product which increases the demand for Firm Z’s product. Is Firm Z’s product a complement or substitute for Firm Y’s product?

(e) Assume firm Z discovers a new way to display its product that takes customers away from its competitors.

(i) What effect would this have on Firm Z’s economic profits in the short run? Explain.

(ii) Assume that, in time, competitors copy Firm Z’s new display. What effect would this have on Firm Z’s economic profits in the long run? Explain.

Oligopoly FRQ