Ch 13

Question 1

Imperfect Competition

Answer 1

firms all have some degree of market power

Question 2

Market Power

Answer 2

ability to have some control over price

Question 3

Perfect Competition

Answer 3

• the most efficient industry structure
• many firms; firms small relative to market
• price takers (no market power)
• no barriers to entry

Question 4

Monopolistic Competition

Answer 4

• less efficient than perfect competition but it more efficient than oligopoly or monopoly
• many firms
• some market power
• similar, but differentiated products
• low barriers to entry

Question 5

Oligopoly

Answer 5

• less efficient than perfect competition or monopolistic competition but more efficient than monopoly
• few firms
• firms have market power
• firms are interdependent upon one another (series of actions and reactions)
• products can be either identical or differentiated
• high barriers to entry

Question 6

Monopoly

Answer 6

• least efficient industry structure
• only one firm
• have market power
• very high barriers to entry

Question 7

Product differentiation

Answer 7

ability to produce a product that is slightly different from that produced by competitors; good substitutes exist

Question 8

Profit Maximizing Condition

Answer 8

produce where MC=MR but MC is not greater than MR; MC also has to be increasing

Question 9

Short Run Monopolistic Competition: Profit

Answer 9

if earning positive profit new firms will enter b/c low barriers to entry; new firms compete away positive profits

Question 10

Long Run Monopolistic Competition: Profit

Answer 10

When earning a profit in the SR the demand curve for existing firms shifts to the left and flattens out a bit until it breaks even; becomes more elastic b/c existing firms now have a smaller market share and there are more substitutes

Question 11

Efficiency of Monopolistic Competition in the LR

Answer 11

• firm is breaking even
• restricts quantity and charges higher price= deadweight loss
• P>MC and P>ATC at min point
• not achieving allocative or productive efficiency

Question 12

Efficiency of Perfect Competition in the LR

Answer 12

• no deadweight loss
• P=MC: achieve allocative efficiency
• P=min ATC: achieves productive efficiency

Question 13

Short Run Monopolistic Competition: Losses

Answer 13

• negative profit

- stay open in SR if P>AVC

Question 14

Long Run Monopolistic Competition: Losses

Answer 14

demand curve shifts to the right b/c firms are going to exit industry; still breaks even in the long run