Chapter 10 Flashcards
What market did Proctor & Gamble, Henkel, Unilever, and Colgate-Palmolive control in France?
90 percent of soap market
Characteristics of a perfectly competitive market
Many firms, identical products, price takers
What type of demand curve does a perfectly competitive firm face?
Perfectly elastic
What is a monopolist’s perceived demand curve?
Market demand curve
What is marginal revenue?
Change in total revenue per quantity
What is an oligopoly?
Few large firms dominate industry
What do firms in a cartel aim to produce?
Monopoly output
What organization has agreements to act like a monopoly?
OPEC
What was the goal of the French soap firms’ secret meetings?
Stamp out competition and set prices
When does a monopoly arise?
Single firm, no close substitutes
What type of demand curve does a monopoly face?
Market demand
What type of competitors face entry barriers?
Monopolists
What do people prefer in an economy?
Variety of products
What happens if oligopolists compete hard?
Act like perfect competitors
What is collusion?
Anti-competitive behavior
What incentive do firms in an oligopoly have?
Produce more for market share
What are some intangible aspects that can differentiate a product?
Guarantees, reputation, services
What defines monopolistic competition?
Many firms, differentiated products
What happens if a monopolistic competitor earns positive economic profits?
Other firms enter
What do critics argue about product differentiation in market-oriented economies?
Socially wasteful
What is a potential outcome of oligopolists colluding?
Act like a monopoly
What is illegal in the U.S. regarding collusion?
Violates antitrust law
What is oligopoly?
Second most common market structure
What type of market do most retailers encounter?
Monopolistically competitive
How does a monopolistically competitive firm perceive demand?
Intermediate case between monopoly and competition
How is marginal cost calculated?
Change in total cost / Change in quantity
How does the leftward shift in marginal revenue affect profit-maximizing quantity?
Decreases it
In the long run, economic profits for a monopolistically competitive firm become?
Zero
Why is the controversy about market variety difficult to resolve?
Optimal amount of variety is hard to determine
How can an oligopoly be created?
Government patents for similar products to multiple firms
Why are cartel agreements rare in the United States?
Provide evidence of collusion
What is the consequence of raising prices in an oligopoly?
Loss of sales share
What characterizes oligopolies?
High barriers to entry
Demand curve for perfectly competitive firm?
Perfectly elastic
How is average cost calculated?
Total cost / Quantity
What does zero economic profit indicate?
Accounting profit equals next best use
What creates a natural monopoly?
Single firm at minimum cost
What type of collusion is most common?
Tacit collusion
What is the result of oligopolists matching price cuts but not increases?
Minimal incentive to change prices
Demand curve faced by monopolist?
Downward sloping
What happens when price is above average cost?
Positive economic profits
How many oligopoly firms can the market accommodate?
Two or three
What can the cartel manage to do despite no legal agreement?
Hold down output and increase price
Can a monopolistic competitor raise its price without losing all customers?
Yes
Which type of firm’s demand curve is downward-sloping?
Monopolistic competitor
How does the demand curve of a monopolistically competitive firm compare to that of a monopoly?
More elastic
What do positive economic profits attract?
Competing firms
In perfect competition, what is price set equal to?
Marginal cost
What creates the barrier to entry in large passenger aircraft?
Economies of scale and market demand
Definition of price takers
Firms with no market power
When was the theory of imperfect competition developed?
1933
What happens when a monopolist raises its price?
Consumers buy different product
What type of market do golf ball manufacturers operate in?
Monopolistically competitive
When does entry into the industry cease?
When zero economic profits
What reflects allocative efficiency in perfect competition?
Marginal benefit equals marginal cost
What is monopolistic competition?
Imperfectly competitive market type
What do some consumers do when a monopolistic competitor raises its price?
Buy similar product
How does a monopolistic competitor decide price and quantity?
Similar to monopolist
