Lecture 8: Monopolistic Competition And Oligopoly

Question 1

Monopolistic competition

Answer 1

Many firms
Different Products
Low to No barriers to entry
Differentiated by:
Style, type, location, quality, etc.

Question 2

Monopolistically competitive firms in the short run can…

Answer 2

Use limited market power and earn positive economic profits if ATR > ATC at the quantity Q* where MC = MR.

Question 3

Monopolistically competitive markets in the long run will…

Answer 3

Earn zero economic profit for the same reasons as firms in perfectly competitive markets. If there are no to low barriers to entry, as long as firms are earning positive profit, new firms will enter the industry in the long run.

Question 4

Oligopoly

Answer 4

A form of market structure that exists when a small number of firms sell similar or differentiated products and have high barriers to entry.

I.e. Gas Stations and Airlines.

Question 5

Cournot Competition

Answer 5

Compete by setting their output levels and letting the market determine price.

Question 6

Bertrand Competition

Answer 6

Competition by settings prices and trying to sell as much as they can at that price.

Question 7

Nash Equilibrium

Answer 7

Where both players are playing their best response to what they think the other play is doing.