ECON10004 Lecture Notes - Lecture 12: Opportunity Cost, Market Power, Monopolistic Competition

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orchidgnu53

27 Jul 2018

School

University of Melbourne

Department

Economics

Course

ECON10004

Professor

Nisvan Erkal

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Document Summary

Market power: capacity of a firm to set the price for its output above the equilibrium price in a perfectly competitive market. Degree of competition market power of firms in that market market outcome/firm profitability. Note: the more substitutable the goods are, the more competition. Price setting when firms have market power b. To maximise profits a firm should supply units of ouput for which marginal revenue marginal cost. Change in total revenue from an additional unit of output. Mr mc addition to tr addition to tc increase in profit. Mr < mc addition to tr < addition to tc decrease in profit. Choose price (or quantity supplied) so that the firm makes an economic profit (zero or above) on any unit of output supplied. Example: profit maximisation for a firm in a pc market. Example: profit maximisation for a firm with market power. Firm with market power has as demand curve with negative relation between price and quantity sold.

Related Questions

A major difference between monopolistic competition and perfect competition is:

a. there are barriers to entry in monopolistic competition. There are no barriers to entry in perfectly competitive markets.

b. monopolistically competitive firms sell differentiated products. Perfectly competitive firms sell identical products.

c. government regulation restricts the ability of monopolistically competitive firms to change their prices. Perfectly competitive firms face no price regulation.

d. the market demand curve in a monopolistically competitive market slopes downward. The market demand curve in a perfectly competitive market is horizontal

bronzecattle701

1. Which market structure is characterized by a few interdependent firms?

A) Monopoly.

B) Perfect competition.

C) Monopolist competition.

D) Oligopoly.

2. The correct ranking (put in order) of the degree of market power (from highest to lowest) is

A) Monopoly, monopolistic competition, perfect competition, oligopoly

B) Monopoly, monopolistic competition, oligopoly, perfect competition.

C) Monopoly, oligopoly, monopolistic competition, perfect competition.

D) Oligopoly, monopoly, monopolistic competition, perfect competition.

3. The term monopolistic competition

A) is an alternate expression for monopoly

B) is used to describe perfect competition with strong entry barriers.

C) denotes an industry with one seller of many differentiated products

D) denotes an industry with many sellers of differentiated products.

ceruleanseal203

1. Which of the following is a characteristic of pure monopoly?

A. close substitute products

B. barriers to entry

C. the absence of market power

D. "price taking"

2. An example of a monopoly would be

A. one of many U.S. wheat farmers

B. one of the few U.S. automakers

C. AT&T cell phone service

D. the local water company

3. In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?

A. monopoly

B. oligopoly

C. only perfect competition

D. only monopolistic competition

E. both perfect competition and monopolistic competition

4. Which of the following is the best example of a perfectly competitive market?

A. farming

B. diamonds

C. athletic shoes

D. soft drinks

E. electricity distribution

crimsonalligator541

ECON10004 Lecture Notes - Lecture 12: Opportunity Cost, Market Power, Monopolistic Competition

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