ch 16 terms

Question 1

define oligopoly

Answer 1

example of imperfect competition
market with few sellers selling similar or identical goods

Question 2

define concentration ratio

Answer 2

% of total output in market supplied by four largest firms

Question 3

define monopolistic competition

Answer 3

many firms sell SIMILAR products
ex. restaurants
easy entry and exit
no econ profit in long run

Question 4

monopolistic in short run

Answer 4

follow monopoly rule for profit maxing
Q: MR = MC

Question 5

define efficient scale

Answer 5

quantity to minimize ATC in mono competition

Question 6

monopolistic va societal welfare

Answer 6

hard to determine

Question 7

product variety externality
monopolistic competition vs societal welfare

Answer 7

entry of new firms conveys + externality on consumers

Question 8

business stealing externality
monopolistic competition vs societal welfare

Answer 8

new competitors impose negative competitors on producers

Question 9

advertising pros

Answer 9

provide info to customers
encourage competition because customers make educated choices

Question 10

advertising cons

Answer 10

manipulate ppls taste
psychological
impedes competition by making brand demand less elastic

Question 11

what does “advertising as a sign of quality” mean

Answer 11

firms willingness to shell out signals belief in their product
as content irrelevant

Question 12

pros for brand names

Answer 12

consumer gets quality info hard to gain otherwise
firms what to uphold their reputation

Question 13

cons for brand names

Answer 13

consumers perceive nonexistent differences
irrationally higher willingness to pay

Question 14

what describes long run profit for monopolistically competitive firm?

Answer 14

mac profit when MR = MC and demand = ATC