Chapter 24 - Monopolistic Competition, Oligopoly, and Game Theory

Question 1

Monopolistic Competition

Answer 1

A theory of market structure based on three assumptions: many sellers and buyers, firms producing and selling slightly differentiated products, and easy entry and exit

Question 2

Excess Capacity Theorem

Answer 2

A monopolistic competitor in equilibrium produces an output smaller than the one that would minimize costs of production

Question 3

Oligopoly

Answer 3

A theory of market structure based on three assumptions: few sellers and many buyers, firms producing either homogenous or differentiated products, and significant barriers to entry

Question 4

Concentration Ratio

Answer 4

The percentage of industry sales (or assets, output, labor force, or some other factor) accounted for by X number of firms in the industry

Question 5

Cartel Theory

Answer 5

A theory of oligopoly and which oligopolistic firms act as if there were only one firm in the industry

Question 6

Cartel

Answer 6

An organization of firms that reduces output and increases price in an effort to increase joint profits

Question 7

Game Theory

Answer 7

A mathematical technique used to analyze the behavior of decision makers who try to reach an optimal position for themselves through gameplaying or the use of strategic behavior, who are fully aware of the interactive nature of the process at hand, and who anticipate the moves of other decision makers

Question 8

Contestable Market

Answer 8

A market in which entry is easy and exit is costless, new firms can produce the product at the same cost as current firms, and existing firms can easily dispose of their fix assets by selling them