market power Flashcards
when does the MC curve intersect the ATC and AVC curves?
at their lowest point
spreading the overhead is a term for…
lowering average cost
Suppose you have just opened a store to sell espresso machines. Both you and a competing store buy this machine from a manufacturer for $130 each. Your competitor, who has a store of the same size as yours, is currently selling about 10 machines a month at a price of $200 per machine. You expect to sell about 6 machines a month at a price of $220 per machine. If you lower your price, you expect to incur a loss. Which of the following could explain why your competitor is able to profitably sell the machine at a lower price although the cost of purchasing the machine is the same for the both of you?
The competing store probably has a lower average cost because average fixed cost falls as output increases.
If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per aeroplane landing, it was previously operating at:
less than minimum efficient scale.
A monopoly is a seller of a product:
without a close substitute.
If we use a narrow definition of monopoly, then a monopoly is defined as a firm:
that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.
a monopoly is characterised by…
high barriers to entry
no close substitutes
market power
The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because:
products are differentiated.
The key characteristics of a monopolistically competitive market structure include:
many small (relative to the total market) sellers acting independently.
what characteristics is not common to monopolistic competition and perfect competition?
Entry barriers into the industry are low
in a perfect competition market each firm…
Produces a good that is identical to that of the other firms
Assume the market for organic produce sold at farmers’ markets is perfectly
competitive. All else being equal, as more farmers choose to produce and sell
organic produce at farmers’ market, what is likely to happen to the
equilibrium price of the produce and profits of the organic farmers in the long
run?
The equilibrium price is likely to decrease, and profits are likely to decrease
list the characteristics of a perfect competition market
there is a large number of firms compared to the market
all firms sell identical products
there are no restrictions to entry by new firms
Both individual buyers and sellers in a perfect competition market
Have to take the market price as a given
how do monopolistically competitive firms maintain economic profits in the long run ?
creating value for customers
achieving lower average costs of production than its competitors
Under monopolistic competition, the differentiation of products implies that:
Individual firms face downward sloping demand curves
When a firm faces a downward-sloping demand curve, marginal revenue
is less than price because a firm must lower its price to sell more.
When economies of scale are present at all relevant levels of output, the
market is a
natural monopoly
Encouraging firms to invest in research and development and individuals to
engage in creative endeavours such as writing novels is one justification for:
Government-created monopolies
An example of a government-imposed barrier to entry gives a firm the
exclusive right to a new product for a period of 20 years from the date the
product is invented. This entry barrier is known as a/an:
patent
