Unit 5

Question 1

Characteristics of an oligopoly

Answer 1

High barriers to entry, super normal profits in the long run, interdependent decision making, a few dominant firms

Question 2

Definition of interdependent decision making

Answer 2

The firm must take into account the likely reactions of their rivals to change in price,output or forms of non-price competition

Question 3

What is an oligopoly collision

Answer 3

Forms worry about uncertainty and uncertainty effects a forms profits, pricing and output. Collision means firms work together

Question 4

What is an overt collusion

Answer 4

Joint development for a product may help because cost are lowered but consumers get more choice

Question 5

What is a covert collision

Answer 5

Market rigging or price fixing within a market, bad for consumers

Question 6

What is tactic collusion

Answer 6

Implicit understanding between firms but no explicit agreement is made, dominated firm becomes price leader and the other forms become price takers

Question 7

What is a cartel collusion

Answer 7

Forms that collude to the same price, Creates a monopoly since their is no really competition. Its illegal

Question 8

Characteristics of a monopoly market

Answer 8

1 dominant firm, supernormal profits in short and long run,high barriers to entry , opportunities for economies of scale

Question 9

What is market power

Answer 9

The ability of a firm to set price above marginal costs

Question 10

Why can supernormal profits be achieved in the short run as well as long run in a monopolistic market

Answer 10

High barriers to entry means AR is greater than AC

Question 11

What are the main types of efficiencies

Answer 11

Productive,static,dynamic , allocative , x

Question 12

What are the advantages of a monopoly to a consumer

Answer 12

Lower costs and prices to a consumer

Question 13

What is price discrimination

Answer 13

A method by which firms segment their market and charge a different price to a each segment

Question 14

What is third-degree price discrimination

Answer 14

Firms offer the same product as a discount to certain consumer groups

Question 15

What is Second- degree price discrimination

Answer 15

Firms offer different prices based on product quality or quantity

Question 16

What is first degree price discrimination

Answer 16

Enables firms to use personal data to charge the equilibrium price to each consumer

Question 17

Advantages of third degree price discrimination

Answer 17

Reduces consumer surplus, increase output through more consumer

Question 18

What is block pricing

Answer 18

A Strategy where a company sets a specific price for a defined quantity or a product or service

Question 19

What Is a natural monopoly

Answer 19

Occurs when it would be too expensive for. A number of competing firms to provide the same product e.g. water and gas provisions

Question 20

Disadvantages of a monopoly

Answer 20

Removes competition due to barriers to entry, makes supernormal profit in the long run by chagrin higher prices than would occur under competitive markets to consumers being exploited

Question 21

What is producer surplus

Answer 21

The difference between how much a person would be willing to accept for a given quantity of a good versus how much they can receive by selling the good at the market

Question 22

What is consumer surplus

Answer 22

A measure of the welfare that people gain from consumption of good’s and services

Question 23

How is productive inefficiency linked to monopolies

Answer 23

It does not produce at the lowest point on the AC curve

Question 24

How is allocative inefficiency linked to monopolies

Answer 24

It does not produce at the lowest point P = MC

Question 25

How is x-efficiency linked with monopolies

Answer 25

No competitors means less incentive to control costs