Econ Ch 11

Question 1

high barriers to entry

Answer 1

what causes them:
1. economies of scale
2.government licensing and other legal barriers to entry
3.patents
4.control over an essential resource

Question 2

problem with high barriers to entry

Answer 2

-producers and restrict supply to raise price

-keep other firms from jumping into the market to increase output and keep prices low

-actual output level that is lower than the socially optimal amount and a price that is higher than the socially optimal price

Question 3

monopoly + graph

Answer 3

1.high barriers to entry
2.single seller of a well defined product that has no good substitutes

Question 4

long run for monopolies

Answer 4

continue to make an economic profit

Question 5

oligopoly

Answer 5

a market that consists of a small number of sellers

The characteristics of an oligopoly are:
A small number of rival firms
more than one, but not a lot, each firm has a considerable amount of power to affect the price
Interdependence among sellers
Another firms decisions, will affect others decisions
High barriers to entry in the market

More power than monopolies, less than competitive

Question 6

prisoner’s dilemma and dominant strategy

Answer 6

a strategy that is best for a player in a game regardless of the strategies chosen by the other players
Ratting each other out

Question 7

game theory

Answer 7

the analysis of strategic choices made by competitors in a conflict situation

Question 8

collusion

Answer 8

the agreement among firms to avoid competitive practices (form cartels)
To gain that monopoly power
Firms will agree to limit output and keep prices high

Question 9

oligopoly prices and profits

Answer 9

Competitive prices <= oligopoly price <= monopoly price

Firms collude: price will be closer to monopoly price
Good for firms, bad to consumers

Firms cheat: price will be closer to competitive price
Good for consumers, bad to firms