Imperfect Competition Test Flashcards
Is a monopoly a price maker of price taker?
Price maker
Do monopolies advertise?
Mainly with PR
Do monopolies have Barriers to exit/entry?
Extensive
Why do monopolies have a downward sloping demand curve?
They have to drop the price to sell the next unit
What are examples of monopolies?
Utilities, DeBeers diamonds, MLB, NFL, airlines
What are the barriers to entry for monopolies?
Economies of scale, legal, raw materials, pricing
What is price cutting?
Sell at a loss to get rid of your competition
What is dumping?
Flooding the market with a product so it losses its value to get rid of competition
What usually ends a monopolies power?
Technology
An unregulated monopoly is also called what?
Single price monopoly
Unregulated monopolies charge what price?
The same price for everyone
In an unregulated monopoly where is MR in relation to the D curve??
Below it
All imperfect firms must operate in the?
Elastic portion
Why is their no supply curve for a monopoly?
They create the supply
Do monopolists want the most profit per unit?
No most profit in general
Are monopolies immune to changes in demand or increased costs of resources?
No
Are monopolies allocative or productive efficiency?
Neither
What are the problems monopolies face?
EOS, x-inefficiency, rent seeking expenditures, technology
Why does EOS hurt monopolies?
Reduced output could lead to ineffienciency
Why does x-ineffienciency hurt monopolies?
They produce at higher costs than necessary because of poor management
Why do rent seeking expenditures hurt monopolies/ what are they?
They spend to much to maintain their monopoly, they fund legislators to get legislation passed in their favor
Why does technology hurt monopolies?
Don’t search for new technology because they don’t think they have competition and they become obsolete
What is a price discriminatory monopoly?
Sells different prices to different people
What makes a monopoly able to price discriminate?
It can segment the market, has a product that isn’t resell able, and it gets rid of consumer surplus
The MR and D curve for what type of monopoly is the same curve?
Price discriminatory
What would happen if monopolies tags should be regulated weren’t?
They would produce a lot less and many people would go without
Why can’t regulated monopolies produce at the socially optimal price?
They would be producing at a loss and be subsidized
Where do regulated monopolies produce?
The fair return price
Unregulated monopolies produce at what price?
The monopoly price
MR=MC up to D curve
Regulated monopolies produce at the fair return price which is where?
P=ATC
Where is the socially optimal price?
P=MC
A regulated monopoly graph is recognizable how?
The MC curve will be mainly below the ATC
How many firms are in monopolistic competition?
About 40-50
What kind of products for monopolist competitive firms produce?
Differentiated products
Do monopolistic competitive firms have price control?
Some
Do monopolistic competitive firms advertise?
Yes, a lot
Are their barriers to exit/entry for monopolistic competition?
No, easy entry/exit
Is monopolistic competition allocative or productive?
Neither
What does monopolistic competition rely on to separate itself from rivals?
Brand Names, product attributes, services, and location
The demand curve of a monopolistic competitive firm is more or less elastic than a monopoly’s?
More
What are the goals of advertising?
To increase demand, and make demand more inelastic
What monopolistic qualities does monopolistic competition have?
Some price control, demand above MR, Ads, neither efficiency
What pure competitive qualities does monopolistic competition have?
Big # of firms, easy exit/ entry, no long run economic profit
What does monopolistic competition do to sell more units?
Drop the price
Does a monopolistic competition earn of profit in the long run?
No because of easy exit/entry
What is earned in the long run for monopolistic competition?
Normal profit
What makes the ATC curve tangent to the demand curve in monopolistic competition?
Excess capacity
What is excess capacity?
Under allocation of resources; this occurs when the price and quantity produced is the normal profit
How many producers are in an oligopoly?
A small #
What type of products do oligopolies produce?
Differentiated or standardized
What are differentiated products?
Consumer products, house held items, cars, tires, etc
What are standardized products?
Steel, zinc, copper, etc
Do oligopolies have price control?
Yes; mutual interdependence
Are there barrier to exit/entry in oligopoly?
Monetary barrier to exit/entry
What are tha barriers to entry for oligopoly?
Large EOS, patents, ads are costly, ownership of raw materials
What is the concentration ratio?
The 4 largest firms sales
What is wrong with the concentration ratio?
It gives the false impression that all 4 are equal
What is the Herfindahl index?
It shows the dominance of each firm; it’s a squared percentage
What is 100 squared on the Herfindahl index?
A pure monopoly
What is collusion?
Price setting
What are cartels?
They get together and agree on production quotas and sell at a common price to maximize price( they are each individually like miny monopolies)
What is overt collusion?
It’s out in the open; like OPEC which is other countries, the US can’t interfere and control them
What is covert or tacit collusion?
A gentlemen’s agreement, it is illegal
What normally happens during collusion?
One firm is dominant and sets the price and the other follow suit
What type of firm has collusion?
Oligopoly
What type of efficiency is an oligopoly?
Neither
What are the obstacles for collision?
Cost differences, # of firms, cheating; other firms entering the market, anti-trust laws, and recessions
What happens in the elastic portion of an oligopoly?
The firm ignores rival’s price increases and it steals from or losses business to its rivals
What happens in the inelastic portion of an oligopoly?
The firm will match rivals price changes and it steals business from other industries
What price will on oligopoly charge?
MR=MC
What are the types of imperfect competition?
Pure monopoly, monopolistic competition, and oligopoly
What are common thins in imperfect completion?
Neither allocative or productive efficiency, downward sloping demand curves, MR is below demand for all graphs except discriminatory monopolies, have to operate in the elastic portion
A single firm is the producer of a product that has no close substitutes
Monopoly
