Identifying Markets and Market Structures Flashcards
Characteristics of Monopolistic Competition
Many Firms, Close Substitutes, Entry by new firms is possible, but less open than in perfect competition. Each firm in the market is like a “mini-monopoly”–it is the only producer of a specific good that is differentiated among many firms.
Characteristics of Monopolistic Competition
Many Firms, Close Substitutes, Entry by new firms is possible, but less open than in perfect competition. Each firm in the market is like a “mini-monopoly”–it is the only producer of a specific good that is differentiated among many firms.
One important difference between a monopoly and a perfectly competitive firm is:
A monopoly has market power, whereas a competitive firm is a price taker
Characteristics of perfectly competitive market
A perfectly competitive market is characterized by a large number of firms, no restrictions on the entry of new firms, and identical products. No firm can influence the market, and consumers (who are well informed about the prices of the products) buy the cheapest products in the industry.
Characteristics of oligopoly
In an oligopoly, there are few firms–more than one, but few enough so that each firm alone can affect the market. Entry into an oligopoly is difficult but not impossible, as it is in a monopoly. The products may or may not be differentiated.
Characteristics of Monopoly
Monopoly is a market structure in which there is just one firm. Consumers have only one place to buy the good, and there are no close substitutes.
One important difference between a monopoly and a perfectly competitive firm is:
A monopoly has market power, whereas a competitive firm is a price taker
Characteristics of perfectly competitive market
A perfectly competitive market is characterized by a large number of firms, no restrictions on the entry of new firms, and identical products. No firm can influence the market, and consumers (who are well informed about the prices of the products) buy the cheapest products in the industry.
Characteristics of oligopoly
In an oligopoly, there are few firms–more than one, but few enough so that each firm alone can affect the market. Entry into an oligopoly is difficult but not impossible, as it is in a monopoly. The products may or may not be differentiated.
Are all Monopolies Natural Monopolies?
No, A natural monopoly is a firm with a declining long-run average total cost curve throughout the entire market. As a result, one firm should produce for the entire market because it can take advantage of economies of scale (i.e., a decreasing ATC as production expands). A natural monopoly is a result of economies of scale, and not all industries face high economies of scale.
True or False: In a perfectly competitive market firms can freely exit the market in the short run?
False, a firm can shut down and produce no output, but the firm must still pay its fixed costs.
A natural monopoly is NOT usually associated with which of the following characteristics?
A. Large fixed costs B. Economies of scale C. The lowest cost of production for a given quantity of output D. A single firm E. Production of the efficient quantity of output
E. Production of the efficient quantity of output.
A natural monopolist continues to choose its output level by setting its marginal revenue equal to its marginal cost. As it faces a downward-sloped demand curve, this means that the monopolist sets price above marginal cost. Therefore, natural monopoly does not lead to the production of the efficient level of output.
True or False: The monopoly’s size, that is, its scale of production, is always very large.
False, a monopoly can be a very small company as long as it is the only seller of that product.
If two goods are in the same relevant market, then the cross elasticities will be…
Positive and Relatively High
Are all Monopolies Natural Monopolies?
No, A natural monopoly is a firm with a declining long-run average total cost curve throughout the entire market. As a result, one firm should produce for the entire market because it can take advantage of economies of scale (i.e., a decreasing ATC as production expands). A natural monopoly is a result of economies of scale, and not all industries face high economies of scale.
