Ch.11 Imperfect Competition

Question 1

A Market in which producers are identifiable & have some CTRL over Price

Answer 1

Imperfect Competition

• Monopolistic Competition
  many firms/ free entry/ diff. prod/ some $ ctrl
• Oligopoly
  a few firms/ difficult entry/ non-price competition/ $ ctrl/ interdependence btw firms

Question 2

Attempt to distinguish product from competitors

& 4 Methods

Answer 2

Prod Differentiation

1. Recognized Brand Name/ Logo/ Packaging
2. Superior Location/ Service
3. Engaged in Prod Development
4. Advertising

Factors other than $

Question 3

A Market in which Many Firms sell differentiated prod & have some CTRL over Price

Answer 3

Monopolistic Competition

Question 4

How Industry measures CTRL of largest firms
& calculation

Answer 4

Concentration Ratio

(4 Largest Firms Total Revenue)
divided by
(Industry Total Revenue)
> 40% ⇒ Oligopoly
< 40% ⇒ maybe Monopolistic Competition

Question 5

2 Factors that Elasticity in Monopolistic Competition depends on

Answer 5

1. # of Rivals
2. Small deg of Prod Diff

Elastic DD Crv
(many choices for Cx)

Question 6

Profitability of Monopolistic Competition
in Short / Long Run

Answer 6

Short-Run:
may have Economic Profit
Long-Run:
Break-Even
(Normal Profit Only)

Question 7

Monopolistic Competition

1. Produce __ / Charges $ __ than Perfect Competition
2. Productive efficiency?
3. Allocative efficiency?

Answer 7

1. Produce - / Charge $ + than Perfect Competition
2. No
   prod < min ATC output
   $ > min ATC $
3. No
   $ > MC

Question 8

3 Ways that Franchises create nationwide business with adv in

Answer 8

1. Large-Scale Advertising
2. Bulk Purchasing
3. Branding

Question 9

3 Ways to block entry of competitors to maintain economic profits in the LR

Answer 9

1. Professional Assoc.
2. Gov Licensing
3. Franchising

Question 10

A behaviour of Oligopoly firm in which actions depend on reactions of rival firms

Answer 10

Mutual Interdependence

Question 11

Agreement among suppliers to set $ or Prod Qty

Answer 11

Collusion

Question 12

A method of analyzing firm behaviour that highlights mutual interdependence among firms

Answer 12

Game Theory

Question 13

A Situation where each rival chooses the best actions
given the anticipated actions of the others

Answer 13

Nash Equilibrium

Question 14

An Association of Sellers
acting in Unison
to ↑ $
by restricting output

Answer 14

Cartel

works for members’ adv
if no cheating
e.g. OPEC

Question 15

Usually Largest / Most Efficient firm
- sets $ publicly
- followed by other firms, w/o overt collusion
- change $ infrequently

Answer 15

Price Leadership

e.g. gas $ rise before long weekend

Question 16

Rival will
follow to drop $
BUT NOT
follow to raise $

__ DD Curve

Answer 16

Kinked DD Crv

Elastic Above current $
Inelastic Below current $

Question 17

Appraisal of Oligopoly
2 Pros & 2 Cons

Answer 17

2 Pros
1. Tech adv
2. AC - in long run

2 Cons
1. Too Powerful
2. Prod & allocative inefficiency

Question 18

2 Ways to Block Entry of Monopolistic Competitive market, and econ. profit could be achieved

Answer 18

1. Franchise
2. Gov Policy
   e.g. taxi