final review Flashcards
A market structure in which several or many sellers each produce similar, but slightly differentiated products. Each producer can set its price and quantity without affecting the marketplace as a whole.
monopolistic competition
The situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers.
perfect competition
Is an enterprise that is the only seller of a specific good or service in its market.
monopoly
- Large number of small firms
- each producing a differentiated product/service (consumer has a preference for the firm over another)
- price searcher, some control over price.
- low barriers to entry
- significant non-price competition
monopolistic competition
. competition is efficient
- competition is good for consumers: more choices and lower prices.
- there is always an incentive to try to get rid of your competition if you are a firm.
- firms are trying to maximize profits.
perfect competition
- firm = industry
- producing a product that has no close substitutes. (no reasonable alternatives)
- firm is a price searcher, some control over the price
- high barriers to entry
- little non-price competition
monopoly
ammonopolistically competitive firm in the long run equilibrium has…
zero economic profits due to low barriers to entry
- few firms in the industry
- producing differentiated or homogeneous product
- price searchers: some control over price
- mutual interdependence
- high barriers to entry
- non-price competition- maybe (tire industry and car industry are examples)
oligopoly
MC=MR is profit maxing/less
P=ATC => breaks even
socially efficient? yes, P=MC
only one that is socially efficient
perfect competition
- faces the law of diminishing returns.
- no long run because low barriers to entry
- MC=MR
- P=ATC => breaks even due to low barriers
- not socially efficient, P>MC
monopolistic competition
-highly but not perfectly elastic
perfect competition
highly inelastic
monopoly
- MC=MR
- P>ATC in LR due to high barriers
- socially efficient? no, P>MC
- no close substitutes
monopoly
- few firms
- mutual interdependence
- long run profit likely? yes, high barriers to entry
- socially efficient? no, P>MC
oligopoly
a regulation breaking large firms with “market power”
antitrust regulation
a regulation looking over a monopoly firm to help it set its price
economic regulation
a regulation to deal with external costs
social regulation
in monopolistic competition, because each firm produces a differentiated product, but has a lot of competition, it faces…
a downsloping and highly elastic demand curve.
monopolistic competition
what are consequences of monopoly? what’s wrong with it?
- it doesn’t give consumers any choices
- it is socially inefficient
- does it use its profits to protect itself rather than become more efficient
could a monopolist make a loss?
if it made a short run loss would it keep producing?
yes, if demand went down and costs went up.
yes, as long as it covers its variable costs.
in the long run, no.
in monopoly, because a monopolist is the only producer of a good with no close substitutes it faces…
a downward sloping and very inelastic demand curve
what are the barriers to entry for a monopoly?
- government- designated monopolies (patents)
- control of a natural resource
- “natural” monopolies: significant economies of scale
The firm in the short run…
Every firm either maximizes or minimizes losses by producing where marginal cost = marginal revenue
in perfect competition because each firm is a price taker it faces…
a perfectly elastic demand curve
