ECON101 Lecture Notes - Lecture 22: Monopolistic Competition, Product Differentiation, Perfect Competition

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cerisegiraffe538

3 Dec 2015

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Wokia Kumase

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ECON101 Full Course Notes

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Firms compete on product quality, price and marketing. Firms are free to enter and exit the industry: large number of firms. Presence of large number of firms has 3 implications for the firms in the industry: small market share. Each firm supplies a small part of the total industry output. Limited power to influence the price of its product. Can only deviate from the average price of other firms by only a relative small amount. If they set the price below average price, the will take away some of competitors customers, but not all of them. Have demand curve similar to monopoly: downward sloping: ignore other firms. Firms are sensitive to the average market price of the product, but the firm does not pay attention to any one individual competitor. Because all firms are relatively small, no one firm can dictate market conditions: no one firm"s actions directly affect the actions of other firms, collusion impossible.

Related Questions

1. A monopoly market structure is characterized by

a. large number of firms, standardized products, easy entry and exit.

b. large number of firms, differentiated products, easy entry and exit.

C. small number of firms, standardized or differentiated products, difficult entry.

d. one firm, a unique product without close substitutes, and impossible entry.

e. one firm, differentiated product, impossible entry.

2. Which of the following is not a characteristic of monopolistic competition?

a. Differentiated products

b. A downward-sloping demand curve for individual firms

c. Firms that are price makers

d. Impeded entry into the industry

e. A large number of firms

3. One factor that distinguishes oligopoly from other market structures is

a. the ease of entry into the market.

b. the interdependence of firms.

c. the slope of the demand curve.

d. the degree of product differentiation.

e. the amount of advertising expenditures.

lavenderbat941

1. The assumptions of perfect competition imply that:

a) Individuals in the market accept the market price as given.

b) Individuals can influence the market price.

c) The price will be fair.

d) The price will be high.

2. Monopolistic competition describes an industry characterized by a ____ number of firms producing____ products with ____ for firms:

a) Small; identical; barriers to entry.

b) Small; similar; relatively easy entry.

c) Large; similar; relatively easy entry.

d) Large; identical; relatively easy entry.

purplehyena626

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

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ECON101 Lecture Notes - Lecture 22: Monopolistic Competition, Product Differentiation, Perfect Competition

ECON101 Full Course Notes

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