Perfect Competition
What is the primary characteristic of a perfectly competitive market?
Many sellers offering identical products.
How many firms exist in a monopoly?
One firm.
What is an oligopoly?
A market structure dominated by a few large firms that are interdependent.
What is product differentiation?
When firms make their product appear unique through branding, quality, or other features.
Which market structure features no barriers to entry and many sellers?
Perfect competition.
What is the level of entry barriers in a perfectly competitive market?
Very low or no barriers to entry.
What is one source of monopoly power?
Control over a key resource or government-granted rights like patents.
What does the term "collusion" refer to in an oligopoly?
When firms work together to set prices or output, often forming a cartel.
Give an example of a firm operating in a monopolistically competitive market.
A fast-food restaurant chain.
Which market structure is most likely to have significant economies of scale?
Monopoly.
In perfect competition, can individual firms influence the market price?
No, they are price takers.
What is the main reason a monopoly can charge higher prices than a competitive firm?
Lack of competition and high barriers to entry.
In game theory, what is the "prisoner's dilemma" an example of?
A situation where individual rational choices lead to a worse collective outcome.
In the short run, monopolistically competitive firms can earn economic profit. What happens in the long run?
Economic profit goes to zero as new firms enter the market.
What is the name for a market dominated by a few firms that compete based on non-price factors?
Oligopoly.
What type of product is sold in a perfectly competitive market?
Identical or homogeneous products.
What type of product does a monopolist sell?
A unique product with no close substitutes.
Name a real-world example of a cartel.
(one possible answer) OPEC (Organization of the Petroleum Exporting Countries).
What is one characteristic monopolistic competition shares with perfect competition?
Many firms in the market.
In which market structure do firms have some control over price due to product differentiation?
Monopolistic competition.
In the long run, what happens to economic profit in perfect competition?
Economic profit becomes zero due to free entry and exit.
What level of control does a monopoly have over prices?
The monopolist has significant control over the price, known as price makers.
What is the key feature that distinguishes an oligopolistic market from a perfectly competitive market?
Firms are aware of and influenced by the actions of their competitors.
Why are monopolistically competitive firms inefficient in the long run?
They do not produce at the lowest point on their average total cost curve due to excess capacity.
What is allocative efficiency, and which market structure achieves it in the long run?
Answer: Allocative efficiency occurs when resources are distributed to produce the goods most desired by society, and it is achieved in perfect competition.