ECON 230D1 Lecture Notes - Lecture 5: Monopolistic Competition, Oligopoly, Market Power

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greywildebeest28

30 Aug 2018

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An oligopoly has a little less power than a monopoly but more than others (like airlines , car industries ) Oligopoly: a small group of firms in a market with some barrier to entry. A cartel = a group of firms agree to coordinate activities to get more market power and maximize profit. (like opec) Firms have the incentive to agree in setting prices or quantities to increase profits. But that also gives you the incentive to cheat (cartels are not stable) By doing that , they become price setters any market structure can become price setters if they do that. Monopolistic competition: firms have market power but no additional firm can enter and earn positive profit. 1- the number of firms in the market. 2- how easy it is to enter and leave the market. 3- the ability of firms to differentiate their products from rivals. Fail if non-cartel members can supply consumers with large quantity of goods.

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If I were to open a business, I would choose the monopolistic competitive market.

Under monopolistic competition, with low barriers to entry and low capital requirements, firms are free to enter into or exit from the industry at any time. In addition, in monopolistic competition, large numbers of sellers offer closely related but not homogeneous products. This is the reason why each firm has a limited share of the market and has limited control over the market price. Thus, changes in one firmâs output have only a slight impact on market price or it also means that firms in monopolistic competition are price setters rather than price takers. In the short run, firms can make excess economic profits. However, as barriers to entry are low, other firms have an incentive to enter the market, increasing the competition, until overall economic profit is zero.

In order to yield the greatest profit, a firm engaged in monopolistic competition will focus on product quality, location, service, and advertising, since the major tool of competition is product differentiation. For example, if I opened a restaurant, the restaurant would have a menu with different dishes and different prices to other restaurants nearby and the prices of the dishes also would depend on its location, the food ingredients, the food quality, and the speed of service. With the purpose of gaining profit for the restaurant, I would try to be dynamically efficient, innovative and develop new ways to attract and retain local custom as well as maintain cost efficiency, which could keep the cost below the average profit.

I need a peer reply for this discussion and it should be 250 at least

bronzefrog162

1) A natural monopoly exists when:

a. A few firms collude to make one large firm

b. Firms enter the industry as a result of profit incentives

c. Economies of scale provide large cost advantages to having one firm produce the industry's output

d. Firms naturally maximize regardless of market structure

2) A(n) ____ is a single firm with ___, whereas a(n) ___ implies an industry with ____ firm(s) and ____ .

a. Monopoly; barriers to entry; oligopoly; few; no barriers to entry

b. Oligopoly; no barriers to entry; monopoly; many; easy entry and exit

c. Monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

d. Monopolistic competitor; barriers to entry; monopoly; one; barriers to entry

3) In monopolistic competition:

a. Each firm produces a product identical to that of every other firm in the industry

b. Firms are aware of their strategic interdependence

c. Firms earn large economic profits in the long run

d. Firms earn zero economic profits in the long run

4) A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, like wheat farming, are alike in that:

a. There are many firms in each industry

b. Firms in both types of industries produce similar but not identical products

c. Barriers to entry in both industries are large

d. Firms in both types of industries produce identical products

byzantiumfish483

1)Which of the following is true about the Sherman Act?

A.It prohibited price discrimination.

B. It prohibited price-fixing and collusion.

C. It prohibited mergers if it led to weakened competition.

D. It made engaging in predatory activities illegal.

E. It encouraged firms to take advantage of the patent system.

2)
Which of the following is true of price discrimination?

A. Customers need to differ in their willingness to pay for price discrimination to occur.

B. Customers need to have a unit elastic demand curve for price discrimination to occur.

C. Price discriminators profit by charging a uniform price to all customers.

D. Price discriminators lack the incentive to reduce their average total cost of production.

E. Customers can easily resell a good to other customers if there exists price discrimination in the market for the good.

3) Which of the following types of firms do not practice price discrimination?

A. Airlines

B. Movie theaters

C. Soft drink companies

D. Colleges

E. Amusement parks

4) Oligopoly, like perfect competition, is a market structure in which firms can easily enter and leave the industry.

a. True
b. False

Monopolistic competition is characterized by:

A. A large number of firms selling differentiated products.

B. A perfectly elastic demand curve.

C. High barriers to entry.

D. large number of firms selling identical products.

E. A small number of firms selling differentiated products.

6) Which of the following is not a source of product differentiation?

A. Prestige considerations in products

B. Differences in the cost of production of products

C. Physical differences in products

D. Differences in the services provided by firms

E. Differences in the location of sales outlets

7) The restaurants in San Francisco can probably be categorized as examples of firms

A. operating in an oligopolistic market.

B. operating in a monopolistically competitive market

C. operating in a perfectly competitive market

D. forming a cartel.

E. Operating in a monopolistic market

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ECON 230D1 Lecture Notes - Lecture 5: Monopolistic Competition, Oligopoly, Market Power

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