modul 16 Flashcards
How does monopolistic competition differ from perfect competition?
Products are differentiated
What is excess capacity and what are its implications for a firm operating under monopolistic competition?
Excess capacity refers to the difference between a firm’s actual production level and its production level at minimum average total cost. It is the cost of product diversity in monopolistic competition.
What is the short-run and long-run equilibrium for a monopolistically competitive firm?
Short-run equilibrium is when the firm is making economic profit, while long-run equilibrium is when the firm is making zero economic profit
How does an oligopoly differ from other types of market structures?
Unlike perfect competition or monopolistic competition, an oligopoly has a small number of firms that dominate the market and there are barriers to entry.
What is the main characteristic of an oligopoly?
The market is dominated by a few firms
What is the collusion model of oligopoly?
A model that describes the behavior of firms in an oligopoly
What is a strategic choice?
A choice made by a firm based on the recognition that the actions of others will affect the outcome
What are the possible outcomes of the prisoners’ dilemma game?
The possible outcomes of the prisoners’ dilemma game are both prisoners confessing (cell A), one prisoner confessing while the other does not (cell B or C), and neither prisoner confessing (cell D).
What is a dominant strategy equilibrium?
A strategy that is the same regardless of the action of the other player
What are the potential outcomes of collusion in an oligopoly?
Decreased competition and higher prices
What is the main characteristic of a monopolistically competitive industry?
Large number of firms
What is the concept of excess capacity in monopolistic competition?
It refers to the situation where a firm produces less than the efficient scale of production
How does monopolistic competition differ from perfect competition?
Products are differentiated
What is the short-run equilibrium for a monopolistically competitive firm?
Price exceeds marginal cost
Restaurants, retail stores, barber and beauty shops, and auto-repair shops are examples of industries that engage in ______ competition.
monopolistic
Monopolistic competition is characterized by a wide range of _ choices.
product
How is monopolistic competition similar to perfect competition?
Many firms, differentiated products, and easy entry and exit
Monopolistic competition assumes a large number of ______.
firms
What is short-run equilibrium for a monopolistically competitive firm?
Short-run equilibrium occurs when the firm maximizes its profit or minimizes its loss by producing at the quantity where marginal revenue equals marginal cost.
Give examples of industries that engage in monopolistic competition.
Restaurants, retail stores, barber and beauty shops, auto-repair shops, service stations, banks, law and accounting firms
What is the relationship between economic profits, entry of new firms, and the long-run equilibrium in monopolistic competition?
Economic profits attract new firms and lead to long-run equilibrium
In the long run, there is ______ incentive for firms to enter or leave a monopolistically competitive industry.
no
What is excess capacity and how does it affect a firm operating under monopolistic competition?
Excess capacity refers to the difference between a firm’s actual production and its production at minimum average total cost. It means that the firm is not producing at the most efficient level, which can lead to higher costs and lower profits.
Explain short-run and long-run equilibrium for a monopolistically competitive firm.
In the short-run, the firm can make economic profit or loss, while in the long-run, economic profit is zero and the firm operates at a point to the left of the minimum of the average total cost curve
What is one main characteristic of a monopolistically competitive industry?
Low degree of monopoly power
What are the main characteristics of a monopolistically competitive industry?
Many firms, differentiated products, some control over price, easy entry and exit
What happens to economic profits or losses in the long run in monopolistic competition?
They are eliminated by entry or exit, leaving firms with zero economic profit
Which of the following is a similarity between monopolistic competition, perfect competition, and monopoly?
Price exceeds marginal cost
What are some examples of industries with standardized and differentiated products?
Standardized: Sporting and athletic goods, Dental laboratories; Differentiated: Golf clubs, running shoes, tennis rackets
What is the concept of collusion in oligopoly?
The firms recognize that their actions will produce a response from rivals
How does an oligopoly differ from other types of market structures?
Unlike perfect competition or monopolistic competition, an oligopoly has a small number of firms that dominate the market and there are barriers to entry.
What is the largest possible Herfindahl-Hirschman Index (HHI) value?
10,000
Which industry has a higher Herfindahl-Hirschman Index (HHI) value, breakfast cereals or ice cream?
Breakfast cereals
What are the two measures of industry concentration reported by the Census Bureau?
Concentration ratios and the Herfindahl-Hirschman Index (HHI)
How does an oligopoly differ from other market structures?
Interdependence between firms
To differentiate an oligopoly from other market structures, we look at the ______ of firms in the industry.
number
What is the main characteristic of an oligopoly?
The market is dominated by a few firms
The cereal market is dominated by two firms, Kellogg’s and General Mills, which together hold more than ______ the cereal market.
half
An oligopoly is characterized by ______ firms.
few
How does an oligopoly differ from perfect competition and monopolistic competition?
The market is dominated by a few firms
______ is the defining characteristic of the oligopoly market
Interdependence
What are the main characteristics of an oligopoly?
Few firms, differentiated products, price makers
What is the collusion model of oligopoly?
A model that describes the behavior of firms in an oligopoly
What is the impact of GMC’s pricing strategy on other automobile and truck manufacturers?
GMC’s pricing strategy in an oligopoly market structure can influence the pricing decisions of other automobile and truck manufacturers, leading to potential price wars or adjustments in response.
What is the measure used to determine the degree of concentration in an industry?
Herfindahl-Hirschman Index
How is an oligopoly different from other types of market structures?
Oligopoly has few firms and differentiated products
What are examples of industries with standardized and differentiated products?
Standardized products include steel, aluminum, wire, and industrial tools, while differentiated products include cigarettes, automobiles, computers, and ready-to-eat breakfast cereal.
What is a strategic choice?
A choice made by a firm based on the recognition that the actions of others will affect the outcome
What is the key characteristic of oligopoly?
Few large firms
What is the prisoners’ dilemma?
A classic game theory problem involving two individuals and a burglary
What is a dominant strategy equilibrium?
A strategy that is the same regardless of the action of the other player
What is game theory?
An analytical approach through which strategic choices can be assessed
______ is a way to avoid the uncertainty firms face in oligopoly.
Collusion
What are the key characteristics of oligopoly?
The key characteristics of oligopoly include a small number of firms, interdependence among firms, and barriers to entry
What is the impact of cheating on profits in a duopoly game?
Cheating increases profits for one firm and decreases profits for the other
What is the impact of communication on strategic choices in a game?
It can lead to collusion and higher profits
Cheating in a duopoly game can lead to a ______ equilibrium, where both firms choose a strategy that lowers their combined profits.
dominant strategy
What are the potential outcomes of collusion in an oligopoly?
Decreased competition and higher prices
What is a payoff in game theory?
The change in economic profit to each firm
What is the concept of game theory?
The study of strategic interactions between rational decision-makers
What are the potential incentives for cheating in a duopoly game?
Gaining a competitive advantage and maximizing individual profits
What is the potential outcome of collusion in oligopoly?
Decreased competition among firms
Give an example of a strategic choice in an oligopoly.
An airline’s decision to raise or lower its fares.
What is the key characteristic of an oligopoly?
A few dominant firms
What is the concept of payoff in game theory?
Payoff in game theory refers to the outcome or result that an individual or firm receives based on their strategic choices and the choices of others in a game.
Game theory is an analytical approach through which ______ choices can be assessed.
strategic
