Monopolistic Competition
If a monopolistic competitive firm is profit maximizing it should produce at a quantity where Marginal Revenues are as close to but greater than what?
Marginal Cost
What is a group of firms acting in unison
Cartel
What is the ability to produce a good or service at a lower opportunity cost than producers of other nations
Comparative Advantage
Jamie Goes on holiday to Florida the exchange rate is ￡1=$1.70. He changes ￡900 into dollars, how many dollars should he get?
$1530
A strategy that guarantees the highest payoff, given the worst possible scenario, is what?
Secure Strategy
What are the characteristics of a monopolisticly competitive firm?
1. Numerous Sellers: Mcdonalds, burger king, wendys, sonic
2. Relatively Easy Entry: easier than perfect comp, but not monopolies
3. Differentiated Products: most restaurants serve hamburgers, but all use different topping
4. Non-price Competition: Businesses compete, at least in part, by using product differentiation and by advertising.
5. Some Control Over Price: By building a loyal customer base through product differentiation, each firm has some control over the price it charges.
What are the 4 characteristics of an oilgopy?
Few Sellers: Several large firms are responsible for 60 to 80 percent of the market. For this class we will use 60% level (concentration index)
Identical or Slightly Different Products: The goods and services provided by oligopolists are very similar.
Non-price Competition: Advertising emphasizes minor differences and attempts to build customer loyalty.
Interdependence: Any change in competitive practices on the part of one firm will cause a reaction on the part of other firms in the oligopolistic industry.
Defict, Surplus
After his Holiday Jamie Changes 160 dollars back to pound the exchange rate is still ￡1=$1.70. How much money should he get?
￡94.12
What is a dominant strategy?
A strategy that is best for a player in a game regardless of the strategies chosen by the other players.
What is the equation used to find the markup in monopolistic competition?
price minus marginal cost at the point of production
Why do oligopolies often end up making zero economic profit like perfect competition?
When cartels form someone usually cheats and their profits go up, but industry profits decrease. Then the other company retaliates and total industry profits decrease further. This process continues till we reach 0 economic profits
List at least two reasons why a country would trade.
Answer Varies
On April 17, 2017, one Australian dollar ($1 AU) would buy $0.85. On April 17, 2010, one Australian dollar would buy $1.06 in the United States. Did the US dollar appreciate or depreciate relative to the Australian dollar between 2010 and 2017? By how much did the currency appreciate/depreciate?
(0.85 – 1.06) ÷ 1.06 = -.198 * 100 = -19.8%
Relative to the Australian dollar, the American dollar appreciated.
A condition describing a set of strategies in which no player can improve their payoff by unilaterally changing their strategy, given the other player’s strategies
Nash Equilibruim
In the long run, a firm in a monopolisticly competitive market will make _____ economic profit. why?
Zero, easy entry and exit, and competition
Calculate the 4-firm concentration for industry consisting of 7 firm with the following million dollars in sales: 6 , 8 , 12 , 15, 2, 7 and 9. Is this firm an oligopoly?
44/59 = 74%. This firm is an oligopoly
import
€ 1.00 is equal to £.86. If $1 is equal to €.91 how many pounds would I get if I convert $5
3.9£
See slide 7
Nash: Cheat, Cheat
Why is monopolistic Competition less efficient than perfect competition?
Excess capacity: The monopolistic competitor operates on the downward-sloping part of its ATC curve, producing less than the cost-minimizing output.
◦ Under perfect competition, firms produce the quantity that minimizes ATC in the long-run – not the case with monopolistically competitive firms.
2. Markup over marginal cost
◦ Under monopolistic competition, P > MC (like monopolist, so we get inefficiencies).
◦ Under perfect competition, P = MC.
A market consists of 10 firms with market revenues of 9, 12, 30, 35, 50, 40, 12, 36, 16, and 19. Using the HHI decided is this firm is an oligopoly?
1266, this firm is not an oligopoly
If a country imposes a tariff domestic supply will _____, imports will ____, and price charged to domestic consumers will ______.
Hint: increase or decrease
increase, decrease, increase
If €1 is equal to $1.1 and £1 is equal to $1.29. How many euros are there per pound of silver? What about pounds of silver per Euro?
€1.17/£
£.85/€
See slide 9
Nash: Promise, Promise