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Exam three micro
| Question | Answer |
|---|---|
| When a monopolist practices price discrimination as opposed to setting a single price | deadweight loss decreases |
| A monopolistic market is | a market structure in which one firm makes up the entire market |
| In a monopolistic market, barriers to entry into the market | prevent competition |
| Barriers to entry in a monopolistic market can be | Legal, Sociological, Natural, technological, postive network externalities |
| There are ____ close substitutes for the monopolists product | no |
| Key differences between a monopolist and a perfect competition | - A monopolistic firms marginal revenue is not its price - Marginal Revenue is ALWAYS below its price - A monopolistic firms output decision can affect price - There is no competition in monopolistic markets |
| The goal of the monopolistic firm is to | Maximize profits |
| The monopoly maximizes profit when | marginal revenue equals marginal cost |
| Marginal revenue is the | change in total revenue associated with the change in quantity |
| The profit maximizing condition of a monopolistic firm is | MR=MC If MR<MC the monopoly can increase profit by decreasing its output IF MR>MC the monopoly can increase its profit by increasing output MR<P |
| A monopolistic firm maximizes | TOTAL profit NOT profit per unit |
| Monopoly VS Monopolistic competition | Monopoly has one seller with a unique product and significant market control while monopolistic competition has many sellers offer similar but differentiated products |
| When a monopolist price discriminates, | it charges different prices to different individuals or groups of individuals consumers with less elastic demands are charged more consumers with more elastic demands are charged less |
| Price discriminating by a monopolists | eliminates welfare loss from monopoly |
| Barriers to enter a monopoly | Natural ability (better than everyone) Natural monopoly(produce at lower cost than everyone) If there were no barriers to entry prodit maximizing firms would compete away monopoly profits |
| a platform business is | a firm that provides people with a platform or underlying infrastructure that facilitates interaction among people |
| Platform business allows businesses to gain | first mover advantage( benefits gained from being the first to gain a significiant share in the market). |
| Platform business creates | a network externality (When greater use of a product increases the benefit of a product to everyone without paying for it) |
| Is education a positive externality? | Yes |
| What are the four characteristics of a monopolistic competition? | 1. Many sellers (dont consider rival reactions) 2. Product differentiation 3. Multiple dimensions of competition ( make it harder to analyze a industry) 4. Ease of entry of new firms in the long run (no significant barriers to entry) |
| Market power helps | determine pricing |
| Perfectly competitive firms have no incentive to advertise, | but monopolistic competitors do |
| The goals of advertising are to | increase demand and to make demand inelastic |
| the increase in cost of a monopolistically competitive product is the cost of | "differentness" |
| Profit of a monopolistic competitor is like a monopoly in the way that | -the monopolistic compeitive form has some monopoly power so firm faces downward sloping demand curve - marginal revenue is below price - at profit maximizing output marginal cost will be less than price |
| What strategies do Oligopoly's use against there competitors? | Price and technology investment |
| What strategies do Monopolistic competitions use against there competitors? | Location (product differentation) |
| What is a monopolies elasticity of demand? | VERY inelastic, low elasiticity |
| What is a Oligopolies elasticity of demand? | Inelastic, low ish elasticity |
| What is a monopolistic competitions elasticity of demand? | Elastic high ish elasticity |
| What is a perfect competitions elasticity of demand? | PERFECTLY ELASTIC |
| What way do you model a oligopoly? | Game theory is classic can use Monopoly for cartels (leaders of all oligopoliy firms get together behind closed doors and agree to maximize total profit in the industry and divide it up among them |
| What way do you model a monopolistic competition? | Monopoly model with dynamic entry and exit |
| What way do you model a perfect competition? | S-D curves, firm cost curves, |
| What is a monopolies profit in the long run? | Positive |
| what is a oligopoly's profit in the long run? | Positive |
| what is a monopolistic competitions profit in the long run? | Zero |
| what is a perfect competitions profit in the long run? | Zero |
| An oligopoly is a market structure in which there are | only a few firms and firms explicitly take other firms response into account - made up of a small number of firms in a industry - firms explicitly must take into acount the expected reactions of other firms - mutually interdependent |
| An oligopoly model can take two extremes | The Cartel model (when a combo of firms acts as if it was a single firm) and the contestable market model (barriers to entry and exit not market strucuture determine price and output positions) |
| Explicit collusion is implicit collusion | illegal in the united states happens legally |
| Implicit price collusion exists when | many firms make the same pricing decisions even though they have not consulted with each other. Sometimes the largest or most dominant firm takes the lead in setting prices and others follow |
| One characterisitic of informal collusive behavior is that prices tend to be sticky, meaning | prices dont change frequently. informal collusion is a important reason why prices are sticky. |
| LKinked demand curve | if a firm increases price others wont go along so demand is very elastic for price increases if a form lowers price their firms match the decrease so demand is inelastic |
| in a contestable market model, even if the industry contains one firm it will still | set a competitive price if there are no barriers to entry |
| Contestable market model vs cartel model | 1 . The cartel is apporopriate for oligopolists that collude, set a monopoly price and prevent market entry 2. the contestable market model describes oligopolies that set a competitive price and have no barriers to entry |
| Goods with a cross price elasticity of _ or more can be regarded as belonging to the same market | 3 |
| The concentration ratio is the | the value of sales by the top of firms as a percentage of total sales |
| The cartel best fits with | empirical measurements of market concentration bc it assumes that the structure of the market is directly related to the price a firm changes |
| Antitrust policy is the | governemtns policy towards the competitve process |
| What are the two views of compeition regarding the Antitrust policy | Judgement by performance(we should judge the competitiveness by performance (behavior) of firms in the market) and judgement by structure( we should judge the competitiveness by the structure of the industry) |
| Shernman antitrust act of 1890 was | a law designed to regulate competitveness process |
| in 1911 the US supreme cort determined that because standard oil controlled __ of the market, that made it a monopoly and it was because of ___ | 90% - unfair business practices. Resolution was to break up into smaller companies |
| Clayton antitrust act of 1914 | identified specific practices as illegal and monopolistic |
| if a firm is competeting so successfully that all the other firms leave the industry, | the successful firm will be a monopolist |
| Judging by structure is _______ though seemingly unfair | practical |
| judging by performance usually means each action bust be analyzed on a __________ basis which is hard to do | case by case |
| Over the past decades the long run trend has seen a | reduction in the # of antitrust cases being brought to the court. |
| Three causes for the decline in the antitrust enforcement | 1. Antitrust laws are known & prevent monopoly actions from occurring 2. Globalization has changed American ideology 3. The rate of technological change has increased |
Created by:
abbypennewell