Chapter 10

Question 1

Monopolistic Competition

Answer 1

Large number of buyers and sellers, free entry and exit, products are differentiated and each firm has some monopoly power

Question 2

Advertising

Answer 2

Causes customers to become more loyal, demand and marginal revenue become steeper, more inelastic, and average total cost goes up

Question 3

Oligopoly

Answer 3

Few sellers that compete, high barriers to entry, sell similar or differentiated product, mutual interdependence

Question 4

Mutual Interdependence

Answer 4

When a firm decides its policy it takes into account the reactions of other firms

Question 5

Cartel

Answer 5

Group of firms that act together by coordinating their decisions

Question 6

Nash Equilibrium

Answer 6

Non-cooperative outcome, neither player has an incentive to deviate

Question 7

Pareto Optimum

Answer 7

Cooperative outcome, makes both or at least one of the players better off without making someone else worse off

Question 8

Prisoner’s Dilemma

Answer 8

Type of game where there is a better outcome than the actual outcome of the game, but they don’t go for it because there’s a lack of trust and the other player will have an incentive to deviate