Firm and Market Structures

Question 1

What Market Structure?
Number of Sellers- Many Firms
Barriers to Entry - Very Low
Nature of Substitute Profits - Very good substitutes
Nature of competition - Price only
Pricing Power - None
Ex.’s - Burger King vs. McDonalds vs. Wendys

Answer 1

Perfect Competition

Question 2

What Market Structure?
Number of Sellers- Many Firms
Barriers to Entry - Low
Nature of Substitute Profits - Good substitutes, but differentiated
Nature of competition - Price, marketing features
Pricing Power - Some
Ex.’s - Ford vs. Chevy vs. GM

Answer 2

Monopolistic Competition

Question 3

What Market Structure?
Number of Sellers- Few Firms
Barriers to Entry - High
Nature of Substitute Profits - Very good substitutes or differentiated
Nature of competition - Price, marketing structures
Pricing Power - Some to Significant
Ex.’s - Coke vs. Pepsi

Answer 3

Oligopoly

Question 4

What Market Structure?
Number of Sellers- Few Firms
Barriers to Entry - Very High
Nature of Substitute Profits - No good substitutes
Nature of competition - Advertising 
Pricing Power - Significant
Ex.'s - Electric

Answer 4

Monopoly

Question 5

In perfect competition, producer firms have no influence on pricing.

Answer 5

Market Supply and Demand determine pricing

*Individual demand schedule is perfectly elastic (horizontal when graphed)

Question 6

The increase in total revenue from selling one more unit of a good/service.

Answer 6

Marginal Revenue

Question 7

In perfect competition, MR = price

Answer 7

Profit Maximizing firms produces quantity Q* when MC=MR = P = ATC

Question 8

LR equilibrium output level for perfectly competitive firms is where MR=MC=ATC

Answer 8

@ which economic cost = 0 at this point

Question 9

In Short Run, Market demand increases, price and quantity increase

Answer 9

…

Question 10

A permanent change in demand leads to the entry of firms to, or exit of firms from, an industry.

Answer 10

…

Question 11

Total Revenue - (explicit costs + implicit costs)

Answer 11

Economic Profit

Question 12

Firm structure where,
P > MC
ATC /= minimum for quantity produced
P* is slightly higher than perfect competition

Answer 12

Monopolistic Competition

Question 13

4 Models for oligopoly price and quantity

Answer 13

1. Kinked Demand Curve Model
2. Cournot Duopoly
3. Nash Equilibrium
4. Stackelberg Dominant Firm

Question 14

Model for oligopoly that is based on the assumption that an increase in firms product price will not be followed by its competitors, but a decrease in price will.

Answer 14

Kinked Demand Curve Model

* the quantity at the kink in them model is profit maximizing

Question 15

Model for oligopoly that considers 2 firms and a constant MC. Firms determine quantities periodically and simultaneously changing until equal.

Answer 15

Cournot Duopoly

Question 16

Model where the equilibrium is reach when the choices of all firms are such that there is not other choice that makes any firm better off (collusion).

Answer 16

Nash Equilibrium

Question 17

Model where a dominant firm runs the price and quantity of the product, and the competing firms alter accordingly

Answer 17

Dominant Firm Model

Question 18

Firm structure that are price searchers with imperfect information. The firm must determine price and quantity combination that will maximize profits.

Answer 18

Monopoly

• To maximize profits, MR = MC.
• Inefficient

Question 19

Charging different customers different prices for the same product/service.

Answer 19

Price Discrimination

Question 20

Monopolistic firm will produce less goods at higher prices than a competitively firm.

Answer 20

…

Question 21

When factors of production lead to a single firm supplying the entire market demand for the product.

Answer 21

Natural Monopoly

Question 22

Under perfect competition structure, the supply function …

Answer 22

has MC curve above its AVC curve. Sum the quantities supplied at each price across all firms in the market

Question 23

In oligopoly, monopoly and monopolistic competition structure, supply functions…

Answer 23

are not well defined. Quantities depend on firms MC, demand and MR.

Question 24

Pricing Strategy under each market structure

Answer 24

Perfect Competition – product quantity where P = MC = MR
Monopoly – Q @ MR = MC < P (price searchers)
Monopolistic Competition Produce Q @ MR=MC
Oligopoly depends on the model used

Question 25

The sum or percentage market shares of the largest N-firms in a market

Answer 25

N-firm concentration ratio

Question 26

Sum of the squares of the market shares of the largest firms in the market.
* barriers to entry aren’t considered in either option

Answer 26

Herfindahl-Hirschman Index