CHAPTER FOURTEEN –OLIGOPOLY AND MONOPOLISTIC COMPETITION

Question 1

Name the two offer hyped of market structure

Answer 1

1. Oligopoly

2. Monopolistic competition

Question 2

What is oligopoly?

Answer 2

A situation in which there are only a few suppliers of a product

Question 3

What is monopolistic competition?

Answer 3

This type merges the monopoly and the perfect competition market structures.

All firms in a monopolistically competitive industry face a downward sloping demand curve, so they have market power and choose their own price like monopolists. However there are no restrictions on entry, any firm can enter at any time

Question 4

Name the two different types of products:

Answer 4

1. Homogenous products

2. Differentiated products

Question 5

What are homogenous products?

Answer 5

Homogenous products refer to goods that are identical and therefore perfect substitutes

Question 6

What are differentiated products?

Answer 6

Differentiated products refer to goods that are similar but not perfect substitutes

Question 7

What are the two unique features of the oligopolists problem?

Answer 7

1. Due to cost advantages associated with the economies of scale of oligopoly or other barriers to entry, entry and exit will not necessarily push the market to zero economic profits in the long run
2. Because of the few competitors, there is an important interaction between the few sellers that occupy the market

Question 8

Whats a duopoly?

Answer 8

A duopoly is an industry with two competiting firms

Question 9

What does bertrand competition refer to?

Answer 9

When consumers oberserve the prices and then choose from which company to buy

Question 10

What does Collusion refer to?

Answer 10

Collusion occurs when rival firms conspire among themselves to set prices or to control production quantities rather than let the free market determine them

Question 11

What are the two important considerations that determine how successful a collusive arrangement is

Answer 11

1. Detection and punishment of cheaters

2. The long term value of the market

Question 12

Whats the formula for computing economic profits for the monopolistically firms?

Answer 12

Profits = Total Revenue - Total Cost

(P-ATC) x Q

Question 13

What are the 4 market structures?

Answer 13

1. Perfect Competition
2. Monopolistic Competition
3. Oligopoly
4. Monopoly