Monopoliles
What is the main cause of monopiles
Barriers to entry
Answer Varies
In the long run firm will always end up making ____ economic profits. Why?
Zero, firms will enter and exit the market
What is a group of firms acting in unison
Cartel
______ relates to the number, size and interaction of firms in particular market
market structure
What is a single firm can produce
the entire market (Q) at lower cost than could
several firms.
Natural Monopoly
Why do firm in a monopolistically competitive market advertise there product.
They have differentiated product and markup prices
What does the demand curve for a perfect competitor look like?
He/she takes the prices determined by market forces. Therefore, the demand curve faced by the individual firm in this market is perfectly elastic (flat).
What is an agreement among firms in a market about quantities to produce or prices to charge?
Collusion
What is a Duopoly?
when two firms supply an entire market
What are 3 reason monopolies arise?
1. A single firm owns (most of) a key resource.
2. The government gives a single firm the
exclusive right to produce the good.
3. Natural monopoly
What are the 5 characteristics of monopolistic competition
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 does MR. Darp stand for, and why is it helpful?
Marginal Revenue= Demand=average revenue= price
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.
The most common form of market structure in the United States
Monopolistic Competition
Why are drug companies a good example of a single price monopoly?
Answer Varies
Drug companies are other monopolies because research has high FC
In the long run monopolistically completive always end up making ____ economic profits? Why?
zero, firms will enter and exit the market
What are 5 characteristic of a perfect competitive firm?
Large number of relatively small buyers and sellers.
Homogeneous Product (other products like yours, Mcdonalds and Wendys)
Easy enter or exit in the industry.
Good/perfect information about price and product qualities.
No market power
Oligopoly Price is ____ than in competitive firms P but ____ than monopolistic firms P
greater, less
What is perfect price discrimination and how do monopiles achieve it?
selling the same good at different prices to different buyers, achieved finding willingness and able to pay and by providing discounts.
When graphing monopiles how do you find the Price and Quantity and why?
In a monopolistic firm they produce where MR=MC and charge where consumers and willing and able to pay which is where Q hits the demand curve.
why are firm in monopolistic competition
less efficient than perfect competition
Excess capacity
◦ The monopolistic competitor operates on the
downward-sloping part of its ATC curve,
produces 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.
At what point should we produce in the short run and shut down in the long run?
When MR is less than ATC but greater than AVC produce in short run and shut down in long run.
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
Which market structure results in dead weight loss and why?
Monopolist, their prices are too high to be economically efficient