Week 8: Market Structure & Performance

Question 1

Imperfect competition refers

Answer 1

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

Question 2

Types of imperfectly competitive markets:

Answer 2

• Monopolistic Competition (Many firms selling products that are similar but not identical)
• Oligopoly (Only a few sellers, each offering a similar or identical product to the others)

Question 3

Attributes of Monopolistic Competition:

Answer 3

• Many sellers
• Product differentiation
• Free entry and exit

Question 4

Product differentiation:

Answer 4

• Each firm produces a product that is at least slightly different from those of other firms
• Rather than being a price taker, each firm faces a downward-sloping demand curve

Question 5

Free entry or exit:

Answer 5

• Firms can enter or exit the market without restriction

* The number of firms in the market adjusts until economic profits are zero

Question 6

A duopoly is an

Answer 6

oligopoly with only two members. It is the simplest type of oligopoly.

Question 7

Examples include:

Answer 7

• Coles & Woolworths
• Arianespace & SpaceX
• Boeing & Airbus

Question 8

Collusion is an

Answer 8

agreement among firms in a market about quantities to produce or prices to change.

Question 9

Cartel is a

Answer 9

group of firms acting in unison.

Question 10

How the size of an oligopoly affects the market outcome:

Answer 10

• The output effect: because price is above marginal cost, selling more at the going price raises profits
• The price effect: raising production will increase the amount sold, which will lower the price and the
profit per unit on all units sold

Question 11

Game theory is the

Answer 11

study of how people behave in strategic situations.

Question 12

The prisoners’ dilemma provides

Answer 12

insight into the difficulty in maintaining cooperation.