chapter four: regulation and competition

Question 1

perfect competition:

Answer 1

• many companies
• price takers
• low barriers of entry
• standardized product
• demand curve: perfectly elastic
• ex: agriculture

Question 2

monopoly:

Answer 2

• one company
• price maker
• high barriers to entry
• no close substitutes
• demand curve: downward sloping
• ex: local utility companies

Question 3

monopolistic competition:

Answer 3

• many companies
• price competition: brand loyalty
• low barriers
• products are differentiated
• elastic
• ex: fast food, small profession companies

Question 4

oligopoly

Answer 4

• few competition
• avoid price competition
• price leadership
• high barriers
• advertising
• demand curve: kinked, downward sloping
• ex: cereal and automotive

Question 5

perfect comp.

Answer 5

• many buyers and sellers
• identical products
• informed buyers and sellers
• free market, entry and exit

Question 6

barriers to entry (imperfect comp.)

Answer 6

• start up costs
• technology

Question 7

price and output

Answer 7

• under perfect comp. there are no legal, social or tech barriers
• buyers and sellers are fully aware about the current market price of a product
• none buy or sell at a higher rate
• the same price prevails in the market under perfect comp.

Question 8

monopoly

Answer 8

a market structure in which a single seller or producer of a particular product or service dominates the industry

Question 9

economies of scale

Answer 9

• the cost advantage companies gain from increasing their output
• an economic term that describes a competitive advantage that large entities have over smaller entities

Question 10

natural monopoly

Answer 10

a type of monopoly that occurs when an industrys high infrastructure costs and other barriers make it difficult for new firms to enter
- telephone lines

Question 11

technology and change

Answer 11

• sometimes the development of a new technology can destroy a natural monopoly
• it will cut fixed costs and make small companies as efficient as large firms (phone comp)

Question 12

govt. monopolies

Answer 12

• technological (patent)
• franchise and licenses
• industrial organizations

Question 13

output decisions

Answer 13

• “monopolist’s dilemma”
• falling marginal revenue
• setting a price
• profits

Question 14

price discrimination

Answer 14

• targeted discounts
• limits of price discrimination
  1. some market power
  2. distinct customer groups
  3. difficult resale

Question 15

monopolistic competition

Answer 15

• occurs in markets where there are multiple similar products that are not perfect substitutes to one another

Question 16

four conditions of monopolistic competition

Answer 16

• many firms
• few artificial barriers to entry
• slight control over price
• differentiated products

Question 17

non price competition

Answer 17

• physical characteristics
• location
• service level
• advertising
• image or status

Question 18

price, output, profit

Answer 18

• pricing under monopolistic competition

Question 19

oligopoly

Answer 19

• a market model in which a market for specific goods or services is divided among a small number of large producers

Question 20

market power

Answer 20

• predatory pricing means higher prices and lower output

Question 21

regulation

Answer 21

• enforce antitrust laws
• break up monopolies
• challenge business practices that limit competition
• block mergers that create unfair market power

Question 22

deregulation

Answer 22

• cut regulations that reduce competition
• eliminate price controls
• allowing prices to fall (theoretically)
• remove barriers to entry
• allowing new firms to enter the market