Chapter 10

Question 1

What market did Proctor & Gamble, Henkel, Unilever, and Colgate-Palmolive control in France?

Answer 1

90 percent of soap market

Question 2

Characteristics of a perfectly competitive market

Answer 2

Many firms, identical products, price takers

Question 3

What type of demand curve does a perfectly competitive firm face?

Answer 3

Perfectly elastic

Question 4

What is a monopolist’s perceived demand curve?

Answer 4

Market demand curve

Question 5

What is marginal revenue?

Answer 5

Change in total revenue per quantity

Question 6

What is an oligopoly?

Answer 6

Few large firms dominate industry

Question 7

What do firms in a cartel aim to produce?

Answer 7

Monopoly output

Question 8

What organization has agreements to act like a monopoly?

Answer 8

OPEC

Question 9

What was the goal of the French soap firms’ secret meetings?

Answer 9

Stamp out competition and set prices

Question 10

When does a monopoly arise?

Answer 10

Single firm, no close substitutes

Question 11

What type of demand curve does a monopoly face?

Answer 11

Market demand

Question 12

What type of competitors face entry barriers?

Answer 12

Monopolists

Question 13

What do people prefer in an economy?

Answer 13

Variety of products

Question 14

What happens if oligopolists compete hard?

Answer 14

Act like perfect competitors

Question 15

What is collusion?

Answer 15

Anti-competitive behavior

Question 16

What incentive do firms in an oligopoly have?

Answer 16

Produce more for market share

Question 17

What are some intangible aspects that can differentiate a product?

Answer 17

Guarantees, reputation, services

Question 18

What defines monopolistic competition?

Answer 18

Many firms, differentiated products

Question 19

What happens if a monopolistic competitor earns positive economic profits?

Answer 19

Other firms enter

Question 20

What do critics argue about product differentiation in market-oriented economies?

Answer 20

Socially wasteful

Question 21

What is a potential outcome of oligopolists colluding?

Answer 21

Act like a monopoly

Question 22

What is illegal in the U.S. regarding collusion?

Answer 22

Violates antitrust law

Question 23

What is oligopoly?

Answer 23

Second most common market structure

Question 24

What type of market do most retailers encounter?

Answer 24

Monopolistically competitive

Question 25

How does a monopolistically competitive firm perceive demand?

Answer 25

Intermediate case between monopoly and competition

Question 26

How is marginal cost calculated?

Answer 26

Change in total cost / Change in quantity

Question 27

How does the leftward shift in marginal revenue affect profit-maximizing quantity?

Answer 27

Decreases it

Question 28

In the long run, economic profits for a monopolistically competitive firm become?

Answer 28

Zero

Question 29

Why is the controversy about market variety difficult to resolve?

Answer 29

Optimal amount of variety is hard to determine

Question 30

How can an oligopoly be created?

Answer 30

Government patents for similar products to multiple firms

Question 31

Why are cartel agreements rare in the United States?

Answer 31

Provide evidence of collusion

Question 32

What is the consequence of raising prices in an oligopoly?

Answer 32

Loss of sales share

Question 33

What characterizes oligopolies?

Answer 33

High barriers to entry

Question 34

Demand curve for perfectly competitive firm?

Answer 34

Perfectly elastic

Question 35

How is average cost calculated?

Answer 35

Total cost / Quantity

Question 36

What does zero economic profit indicate?

Answer 36

Accounting profit equals next best use

Question 37

What creates a natural monopoly?

Answer 37

Single firm at minimum cost

Question 38

What type of collusion is most common?

Answer 38

Tacit collusion

Question 39

What is the result of oligopolists matching price cuts but not increases?

Answer 39

Minimal incentive to change prices

Question 40

Demand curve faced by monopolist?

Answer 40

Downward sloping

Question 41

What happens when price is above average cost?

Answer 41

Positive economic profits

Question 42

How many oligopoly firms can the market accommodate?

Answer 42

Two or three

Question 43

What can the cartel manage to do despite no legal agreement?

Answer 43

Hold down output and increase price

Question 44

Can a monopolistic competitor raise its price without losing all customers?

Answer 44

Yes

Question 45

Which type of firm's demand curve is downward-sloping?

Answer 45

Monopolistic competitor

Question 46

How does the demand curve of a monopolistically competitive firm compare to that of a monopoly?

Answer 46

More elastic

Question 47

What do positive economic profits attract?

Answer 47

Competing firms

Question 48

In perfect competition, what is price set equal to?

Answer 48

Marginal cost

Question 49

What creates the barrier to entry in large passenger aircraft?

Answer 49

Economies of scale and market demand

Question 50

Definition of price takers

Answer 50

Firms with no market power

Question 51

When was the theory of imperfect competition developed?

Answer 51

1933

Question 52

What happens when a monopolist raises its price?

Answer 52

Consumers buy different product

Question 53

What type of market do golf ball manufacturers operate in?

Answer 53

Monopolistically competitive

Question 54

When does entry into the industry cease?

Answer 54

When zero economic profits

Question 55

What reflects allocative efficiency in perfect competition?

Answer 55

Marginal benefit equals marginal cost

Question 56

What is monopolistic competition?

Answer 56

Imperfectly competitive market type

Question 57

What do some consumers do when a monopolistic competitor raises its price?

Answer 57

Buy similar product

Question 58

How does a monopolistic competitor decide price and quantity?

Answer 58

Similar to monopolist