Chapter 7

Question 0

List the ways in which a government may create a monopoly.

Answer 0

by issuing a patent
by issuing exclusive franchises
by allowing market restrictions and through exemptions from antitrust regulations

Question 1

List and briefly describe four types of monopolies.

Answer 1

natural monopoly - produce products for lowest cost and force competitors out of business and need large investments
geographic monopoly - best location
government monopoly created by legal barriers to entry
technological monopoly - seller has a government patent, the to exclusively manufacture an invention for a specified number of years

Question 2

List the four strict conditions for perfect competition.

Answer 2

many buyers and sellers participate in the market
sellers offer identical products
buyers and sellers are well informed about products
sellers are able to enter and exit the market freely

Question 3

what are the conditions for pure monopoly?

Answer 3

single seller
no subsidies
no entry
almost complete control of market price

Question 4

what are the conditions of monopolistic competition

Answer 4

numerous sellers
relatively easy entry
differentiated products - each seller sells a slightly different product
nonprice competition - business compete by product differentiation and by advertising
little control over price

Question 5

what are four ways that companies may compete by nonprice competition?

Answer 5

physical characteristics of the product
location
service level
advertising, image, or status

Question 6

what are the conditions of oligopoly

Answer 6

dominion by a few sellers
barriers to entry
identical or slightly differing products
nonprice competition - competition takes the form of product differentiation and advertising that emphasizes major differences and attempt too build consumer loyalty
limited control over price

Question 7

how might predatory pricing hurt the predator

Answer 7

they altar it where the price is below the cost. bigger businesses can absorb losses. cost money.

Question 8

under what conditions will the government block a merger? how might certain mergers benefit the consumer?

Answer 8

if two companies become so powerful that they create a monopoly. if companies are complementary they benefit consumers by working together.

Question 9

A market structure in which a large number of firms all produce the same product and no single seller controls supply or prices

Answer 9

Perfect competition

Question 10

Commodity

Answer 10

A product, such as petroleum or milk, that is considered the same no matter who produces or sells it

Question 11

Any factor that makes it difficult for a new firm to enter a market

Answer 11

Barrier to entry

Question 12

A market structure that fails to meet the conditions of perfect competition

Answer 12

Imperfect competition

Question 13

The expenses a new business must pay before it can begin to produce and sell goods

Answer 13

Start-up costs

Question 14

A market in which a single seller dominates

Answer 14

Monopoly

Question 15

A market that runs most efficiently when one large firm supplies all of the output

Answer 15

Natural monopoly

Question 16

A monopoly created by the government

Answer 16

Government monopoly

Question 17

A license that gives the inventor of a new product the exclusive right to sell it for a specific period of time

Answer 17

Patent

Question 18

A contract that gives a single firm the right to sell its goods with in an exclusive market

Answer 18

Franchise

Question 19

A government issued right to operate a business

Answer 19

License

Question 20

The division of consumers into groups based on how much they will pay for a good

Answer 20

Price discrimination

Question 21

The ability of a company to control prices in total market output

Answer 21

Market power

Question 22

A market structure in which many companies sell products that are similar but not identical

Answer 22

Monopolistic competition

Question 23

Differentiation

Answer 23

Making a product different from other similar products

Question 24

A way to attract customers through style, service, or location, but not a lower price

Answer 24

Nonprice competition

Question 25

A market structure in which a few large firms dominate a market

Answer 25

Oligopoly

Question 26

A series of competitive price cuts that lowers the market price below the cost of production

Answer 26

Price war

Question 27

An illegal agreement among firms to divide the market, set prices, or limit production

Answer 27

Collusion

Question 28

An agreement among firms to change one price for the same good

Answer 28

Price-fixing

Question 29

Cartel

Answer 29

A formal organization of producers that agreed to coordinate prices and production

Question 30

Selling a product below cost for a short period of time to drive competitors out of the market

Answer 30

Predatory pricing

Question 31

Laws that encourage competition in the marketplace

Answer 31

Antitrust laws

Question 32

Trust

Answer 32

Any legal grouping of companies that discourages competition, similar to a cartel

Question 33

When two or more companies join to form a single firm

Answer 33

Merger

Question 34

The removal of some government controls over a market

Answer 34

Deregulation