Introduction to Imperfect Competition
Monopoly
Price Discrimination
Monopolistic Competition
Oligopoly and Game Theory
100
Imperfectly competitive markets have what type of demand curve?
A. Upwards Sloping
B. Horizontal Line
C. Downwards Sloping
D. Vertical Line.
C. Downwards Sloping
Explanation: Imperfect Competitive markets have some sort of product differentiation causing difference prices for different brands because of this, they sell more of their product by lowering its price.
100
What is a Monopoly?
A) A market structure with many firms competing
B) A market structure where one firm dominates the market
C) A market structure with only two firms
D) A market structure with perfect competition
B) A market where one firm dominates the market
Explanation: The definition of a monopoly is "A monopoly is a market in which one person or company is the only supplier of a particular good or service."
100
Which is true about Price Discrimination?
A) Businesses charging the same price for every customer
B) This is only able to occur in perfectly competitive market
C) Different customers are willing to pay at different prices and the company charges each customer at each specific price.
D) Marginal Revenue is below the price demand curve.
C) Different customers are willing to pay at different prices and the company charges each customer at each specific price.
Explanation: The customers have different willingness to pay at different cost which is a quality of price discrimination
100
Which of these is not a characteristic of monopolistic competition?
A) High barriers to entry
B) Large number of firms
C) Differentiated products
D) Some control over price
A) High Barriers to Entry
Explanation: Monopolistic Competition has some control over price, slightly differentiated products, large number of firms but not high barriers to entry
100
Which is true?
A) Firm 1's dominant strategy is to price low
B) Firm 1's dominant strategy is to price high
C) Firm 2's dominant strategy is to price low
D) Firm 2's dominant strategy is to price high
B) Firm 1's dominant strategy is to price high
Explanation: Firm 1’s best strategy is to price high as he can guarantee a higher profit than he would have if he price low.
200
Which of these is not a barrier to entry?
A. Start Up Costs
B. A Large Number Of Existing Firms
C. Ownership of Raw Materials
D. Legal Barriers
B. A Large Number Of Existing Firms
Explanation: A large number of existing firms doesn’t affect your entry difficulty, however legal barriers will prevent you along with the requirement of an ownership of raw materials, startup costs will count as barriers as well.
200
What is the primary reason Monopolies can maintain their market power?
A) High levels of advertising
B) Government Regulation
C) High Barriers of Entry
D) Consumer Preference for Variety
Answer: C) High Barriers of Entry
Explanation: Monopolies often exist because they are the sole producers of a product, leading to high entry barriers for new firms.
200
What kind of surplus are there in a price-discriminating monopoly when they are maximizing profit?
A) Only consumer surplus
B) Only producer surplus
C) Both producer and consumer surplus
D) No surplus
B) Producer Surplus
Explanation: Only producer surplus since in price discrimination, companies charge each buyer their exact willingness to pay, extracting all the possible economic surplus and deadweight loss.
200
What is non-price competition for monopolistic competition?
Packaging, marketing/advertising, product attribute
Explanation: Non-price competition has to be used by monopolistically competitive firms because they have similar yet differentiated products, they need to stand out with packaging, marketing, and product attributes.
200
Which of the following is a Nash equilibrium?
Both Art and Zeb will lower prices.
Art will lower prices, and Zeb will charge the same prices.
Art will charge the same prices, and Zeb will lower prices.
Both Art and Zeb will charge the same prices.
There is no Nash equilibrium.
A) Both Art and Zeb will lower prices
Explanation: In Nash equilibrium, both Art and Zeb will charge lower prices. The combination of strategies is Nash because neither party has an incentive to change strategy unilaterally to move to any other combination.
300
In the total revenue test, if the price falls and TR increases, is demand elastic or inelastic?
A) Elastic
B) Inelastic
A) Elastic
Explanation: Price and Revenue have an inverse relationship in an elastic demand.
300
Microtown is a medical company that is the only company selling a medicine for influenza, this medicine is highly in demand and Microtown is currently in short-run profit. Draw a graph for this company.
300
Which of these companies are price discriminating?
A) Computer companies selling their own pc and silicon chip
B) Fast food companies charging cheaper food so that more customers would buy it
C) Water bottle design business selling more water bottles by changing price tag from $80 to $60
D) Traveling companies charge less for children and more for adults.
D) Traveling companies charge less for children and more for adults.
Explanation: Younger customers might have less financial power and adults have more and companies can charge according to their age.
300
Which of the following is true about Monopolistic Competition in the long-run?
A) It has excess capacity because it is producing at minimum ATC, but they are making a profit.
B) It does not have excess capacity.
C) It has excess capacity because its price exceeds MC, but they are making a normal profit.
C) It has excess capacity because its price exceeds MC, but they are making a normal profit.
Explanation: Firms produce below optimal output as they set prices above marginal cost, when new firms enter market this eventually causes normal profits.
300
What is a colluding oligopoly, why is it bad?
i) When firms coordinate actions to maximise joint profits
ii) Joint actions cause detriment to customers and market efficiency
400
Why is the MR less than the demand in a Monopoly market?
Answer: Monopolies are price makers not price takers, they have to lower the prices in order to sell more unlike perfect competition.
400
(PD) WataDine is a restaurant in a monopolistically competitive market that serves lunch and dinner, currently producing at the profit-maximizing output level and earning positive economic profit.
(a) How is monopolistic competition similar to each of the following market structures?
(i) Perfect competition
(ii) Monopoly
The response outlines one similarity between monopolistic competition and perfect competition (both have many firms and easy entry/exit) and one similarity between monopolistic competition and monopoly (both have market power, face a downward-sloping demand curve, and set prices above marginal cost at the profit-maximizing quantity).
400
If this monopolist was price discriminating, where is quantity and price of profit maximisation occurring at?
Answer: 48$
If a monopoly is price discriminating that would mean MR = D, leaving profit maximisation to occur at where MR = MC, but because price discrimination means selling at every price possible, Q=0-4, P=10-14.
400
For the monopolistically competitive firm represented by the graph above, the allocatively efficient quantity of the output is:
Answer: Q3
Explanation: Allocatively efficient means P=MC
400
A) A,X
B) B,X
C) A,Y
D) B,Y
Answer: A
Explanation: Explanation: P1 can guarantee higher results with choice A than if he went choice B, while P2 can guarantee higher results with choice X than Y.