Chapter 11 - Imperfect Competition and Strategic Behaviour

Question 1

What can an industry with many small firms do unlike in perfect competition?

Answer 1

Differentiated products
Advertising
Market power

Question 2

What is a highly concentrated industry?

Answer 2

Has a small number of relatively large firms

Question 3

What is monopolistic competition?

Answer 3

Large number of small firms with some market power

Question 4

What is oligopoly?

Answer 4

Small number of large firms each with considerable market power

Question 5

What is an imperfectly competitive market structure?

Answer 5

Not a monopoly, not in perfect competition

Question 6

Most firms in imperfectly competitive markets sell _ products

Answer 6

Differentiated

Question 7

A price setter faces a _-sloping DC

Answer 7

Downward

Question 8

Is the DC for a monopolistic competition highly elastic or inelastic?

Answer 8

Elastic

Question 9

All firms in monopolistic competition have the same _ curve

Answer 9

Cost

Question 10

Firms are free to enter and exit the industry in monopolistic competition. T/F?

Answer 10

True

Question 11

What occurs when the DC is tangent to the LRAC?

Answer 11

Each firm is still maximizing profit, but profit is = 0

Question 12

In the LR equilibrium, each firm has _

Answer 12

Excess capacity

Question 13

A firm selling more would reduce revenue (more/less) than it reduces cost

Answer 13

More

Question 14

An oligopolistic firm faces (many/few) competitors

Answer 14

Few

Question 15

What 2 things can oligopolistic firms do?

Answer 15

Cooperate/collusion and max joint profits

Compete and max individual profits

Question 16

If firms cooperate, they yield (high/low) output and (high/low) price. Thus earning (small/large) profits

Answer 16

Low, high, large

Question 17

If firms compete, they yield (high/low) output and (high/low) price. Thus earning (small/large) profits

Answer 17

High, low, small

Question 18

A non-coop equilibrium is also known as _ equilibrium

Answer 18

Nash

Question 19

Differentiate explicit vs tacit collusion

Answer 19

Explicit is when firms formally agree

Tacit is cooperation without formal agreement

Question 20

Describe brand proliferation

Answer 20

The more differentiated products an existing oligopolist has, the smaller the market share is to entering firms with just one product

Question 21

Oligopoly leads to more _ than in either perfect competition or monopoly

Answer 21

Innovation