Monopoly and Monolistic Competition

Question 1

Monopoly Firm

Answer 1

• A firm is considered a monopoly if …
–it is the sole seller of its product.
–its product does not have close substitutes.
= price maker

Question 2

Natural Monopolies

Answer 2

• An industry is a natural monopoly when a single
firm can
–supply a good or service to an entire market
–at a smaller cost than could two or more firms.

Question 3

Price Maker vs Price Taker

Answer 3

While a competitive firm is a price taker, a monopoly firm is a price maker.

Question 4

Price Discrimination

Answer 4

Price discrimination is when the same good is sold at different prices to different customers, even though the production costs for the two customers are the same.

Question 5

Imperfect Competition

Answer 5

Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly.

Question 6

Monopolistic Competition

Answer 6

Monopolistic competition

Many firms selling products that are similar but not identical.

Question 7

Attributes of Monopolistic Competitiion

Answer 7

Many sellers
Product differentiation
Free entry and exit
Zero long-run profits