FULL REVIEW = MARKET STRUCTURES

Question 1

What are some characteristics of Perfect Competition?

Answer 1

• firms are PRICE TAKERS
• unlimited number of firms
• free entry and exit
• full information
• identical products

Question 2

What are some characteristics of a monopoly?

Answer 2

• Control the market, deliver full market output
• Monopoly demand curve IS the market demand curve
• The only supplier of a good where there is no close substitute

Question 3

In what part of the demand curve does the monopolist NOT produce?

Answer 3

The monopolist WONT ever produce in the inelastic section of the demand curve, as this is where MR turns negastive

Question 4

If a firm knows its elasticity and MC, what equation could it use to find its optimal price?

Answer 4

Question 5

What is the lerner index?

Answer 5

An index that measures the market power of a firm, the firm’s ability to charge a price greater than MC!

Question 6

What is the equation of the Lerner Index?

Answer 6

0 = no market power, competitive firms

1 = max market power

Question 7

What does this graph show?

Answer 7

the DWL, this exists because p does NOT equal MR!

Question 8

What are some characteristics of an oligopoly (duopoly)?

Answer 8

• 2 firms
• no entry of firms
• firms set their quantities independently and simultaneously
• identical costs, identical products

Question 9

Differ between cournot, stackelberg and bertrand?

Answer 9

Cournot - normal duopoly, best-response functions

Stackelberg - 1 follower, 1 leader, work backwards

Bertrand - prices which are each others mutual best responses