EDUC 411 Lecture Notes - Lecture 2: Monopolistic Competition, Wojciech, Imperfect Competition

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Economics

Principles of

N. Gregory Mankiw

Monopolistic

Competition

Seventh Edition

CHAPTER

Wojciech Gerson (1831-1901)

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In this chapter,

look for the answers to these questions

•What market structures lie between perfect

competition and monopoly, and what are their

characteristics?

•How do monopolistically competitive firms choose

price and quantity? Do they earn economic profit?

•How does monopolistic competition affect society’s

welfare?

•What are the social costs and benefits of

advertising?

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INTRODUCTION:

Between Monopoly and Competition

Two extremes

Perfect competition: many firms, identical

products

Monopoly: one firm

In between these extremes: imperfect competition

Oligopoly: only a few sellers offer similar or

identical products.

Monopolistic competition: many firms sell

similar but not identical products.

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Document Summary

Oligopoly: only a few sellers offer similar or identical products. Monopolistic competition: many firms sell similar but not identical products. Monopolistic competition number of sellers many free entry/exit yes long-run econ. profits zero many yes zero the products firms sell identical differentiated firm has market power? none, price-taker yes. Monopolistic competition number of sellers free entry/exit one no long-run econ. profits positive firm has market power? yes many yes zero yes. D curve facing firm downward- sloping (market demand) downward- sloping close substitutes none many. To maximize profit, firm produces q where mr = mc. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. profit. The best this firm can do is to minimize its losses. Short run: under monopolistic competition, firm behavior is very similar to monopoly.

Related Questions

Which statement is true?

The minimum point on the firm's marginal cost curve is the shutdown point.

The minimum point on the firm's average variable cost curve is the shutdown point.

The minimum point on the firm's average total cost curve is the shutdown point.

The minimum point on the firm's marginal cost curve is the break-even point.

As output expands beyond the break-even point, the vertical distance between the AVC and ATC will

remain constant.

get smaller.

get larger.

Total revenue divided by output equals

average variable cost.

marginal cost.

price.

average total cost.

A monopoly firm selling mustache wax to vain men in a small town is currently maximizing profits by charging a price of $5. It follows that the marginal cost of mustache wax

is equal to $5.

is greater than $5.

is less than $5.

None of these choices are true.

A firm can sell 14 units at $18, but to sell 15 units, the firm must cut the price to $17. The marginal revenue derived from selling the 15th unit is

-$18

$17

If total revenue is increasing as output is rising, then

marginal revenue must be greater than zero.

marginal revenue must be less than zero.

marginal revenue must be equal to zero.

price must be increasing.

Firms that had virtual monopolies, that is control over at least 80 percent of industry production, because of control over an essential resource include all of the following except

the DeBeers Diamond Company.

the Standard Oil Company.

the Ford Motor Company.

the International Nickel Company.

10.

Which statement is true?

None of these statements are true.

Most natural monopolies are government regulated or government owned.

All monopolies are bad.

All monopolies are good.

11.

Which is the most accurate statement?

There are virtually no oligopolies in the U.S.

The most important aspect of oligopoly is product differentiation.

There are a whole range of oligopolistic models, from a cartel to cutthroat competition.

An oligopolistic industry cannot have more than five firms

12.

Oligopolists have more control over prices than monopolistic competitors because

their prices are always set by the government.

since an oligopolist is the only competitor in the market, setting prices is no problem.

they can legally collude whereas monopolistic competitors may not.

with fewer competitors, they are able to monitor and determine their own prices much easier.

13.

The definition of monopolistic competition differs from that of perfect competition

in neither the number of firms nor the type of product.

in both the number of firms and the type of product.

with respect to the type of product.

with respect to the number of firms in the industry.

14.

The typical monopolistic competitor

may compete on the basis of physical differences, convenience, service, and ambience.

always competes on the basis of producing a product that is physically different from those of its competitors.

never uses price discrimination.

is a large firm.

15.

Which statement is true?

The monopolistic competitor may make a profit in the long run.

The monopolistic competitor has a perfectly elastic demand curve.

None of these statements are true.

The monopolistic competitor operates at the minimum point of her ATC curve.

16.

Which statement is true about the monopolistic competitor in the long run?

It will be breaking even.

It will be making a profit.

It may be making a profit or taking a loss.

It will be taking a loss.

17.

Which statement is true?

Most monopolistic competitors are large firms.

Monopolistic competitors produce goods or services for which there are no close substitutes.

None of these statements are true.

Monopolistic competitors usually operate at the minimum point of their average total cost curves.

18.

Which statement is false?

As the price of a good rises the consumer surplus decreases.

A person would maximize her total utility when she had no consumer surplus.

We will consume a service when its marginal utility is equal to its price.

A product's utility to a buyer is measured by how much the buyer is willing to pay for it.

A consultant has advised Consolidated Fish, Inc., a perfectly competitive firm, that it should cut back its production in order to increase its profits. We can conclude from this that

CF's total costs must be greater than its total revenues.

CF's marginal cost must be greater than the price of its product.

CF's costs are increasing at a rate less than its revenues.

fixed costs are not being covered and CF should shut down.

If marginal cost is equal to marginal revenue

the firm should hold output constant.

the firm should expand output.

there is no way to determine if the firm should expand output, contract output, or hold output constant.

the firm should contract output.

Which statement is true?

The minimum point on the firm's marginal cost curve is the shutdown point.

The minimum point on the firm's average variable cost curve is the shutdown point.

The minimum point on the firm's average total cost curve is the shutdown point.

The minimum point on the firm's marginal cost curve is the break-even point.

As output expands beyond the break-even point, the vertical distance between the AVC and ATC will

remain constant.

get smaller.

get larger.

Total revenue divided by output equals

average variable cost.

marginal cost.

price.

average total cost.

A monopoly firm selling mustache wax to vain men in a small town is currently maximizing profits by charging a price of $5. It follows that the marginal cost of mustache wax

is equal to $5.

is greater than $5.

is less than $5.

None of these choices are true.

A firm can sell 14 units at $18, but to sell 15 units, the firm must cut the price to $17. The marginal revenue derived from selling the 15th unit is

-$18

$17

If total revenue is increasing as output is rising, then

marginal revenue must be greater than zero.

marginal revenue must be less than zero.

marginal revenue must be equal to zero.

price must be increasing.

Firms that had virtual monopolies, that is control over at least 80 percent of industry production, because of control over an essential resource include all of the following except

the DeBeers Diamond Company.

the Standard Oil Company.

the Ford Motor Company.

the International Nickel Company.

10.

Which statement is true?

None of these statements are true.

Most natural monopolies are government regulated or government owned.

All monopolies are bad.

All monopolies are good.

11.

Which is the most accurate statement?

There are virtually no oligopolies in the U.S.

The most important aspect of oligopoly is product differentiation.

There are a whole range of oligopolistic models, from a cartel to cutthroat competition.

An oligopolistic industry cannot have more than five firms

12.

Oligopolists have more control over prices than monopolistic competitors because

their prices are always set by the government.

since an oligopolist is the only competitor in the market, setting prices is no problem.

they can legally collude whereas monopolistic competitors may not.

with fewer competitors, they are able to monitor and determine their own prices much easier.

13.

The definition of monopolistic competition differs from that of perfect competition

in neither the number of firms nor the type of product.

in both the number of firms and the type of product.

with respect to the type of product.

with respect to the number of firms in the industry.

14.

The typical monopolistic competitor

may compete on the basis of physical differences, convenience, service, and ambience.

always competes on the basis of producing a product that is physically different from those of its competitors.

never uses price discrimination.

is a large firm.

15.

Which statement is true?

The monopolistic competitor may make a profit in the long run.

The monopolistic competitor has a perfectly elastic demand curve.

None of these statements are true.

The monopolistic competitor operates at the minimum point of her ATC curve.

16.

Which statement is true about the monopolistic competitor in the long run?

It will be breaking even.

It will be making a profit.

It may be making a profit or taking a loss.

It will be taking a loss.

17.

Which statement is true?

Most monopolistic competitors are large firms.

Monopolistic competitors produce goods or services for which there are no close substitutes.

None of these statements are true.

Monopolistic competitors usually operate at the minimum point of their average total cost curves.

18.

Which statement is false?

As the price of a good rises the consumer surplus decreases.

A person would maximize her total utility when she had no consumer surplus.

We will consume a service when its marginal utility is equal to its price.

A product's utility to a buyer is measured by how much the buyer is willing to pay for it.

Can I get answers about these questions??

These questions are about Chapter 16-22 in Principles of Microecnomics sixth editon.

Monopolistic competition

Â· What makes a market monopolistically competitive?

Â· How do monopolistically competitive firms decide how much to produce and what price to set?

Â· How to monopolistically competitive firms make short-run and long-run choices?

Â· What is the role of advertising?

Oligopoly and Game Theory

Â· What is the prisonerÃ¢â¬â¢s dilemma and what are some applications?

Â· What is collusion and why is it difficult? What are some things that can make it harder or easier to collude?

Â· What is a dominant strategy?

Â· How can you find a Nash equilibrium in a game where a player has a dominant strategy?

Markets for Factors of Production

Â· How do profit maximizing firms decide how much of a factor of production (such as labor) to use? In other words what is the demand for factors of production?

Â· What changes the demand for factors of production?

Â· What determines the supply for labor? Supply for other factors of production?

Â· How are the rental prices and wages determined in a competitive market for factors of production?

Earnings and Discrimination

Â· What are some reasons why different people have different labor earnings?

Â· What are some difficulties in measuring discrimination?

Â· Why might firms that discriminate have difficulty competing?

Â· Why might a firm find it profitable to discriminate?

Income Inequality and Poverty

Â· What are some political philosophies regarding what the government should do to decrease poverty or income inequality?

Â· What are some policies that can reduce poverty? What are the strengths and weaknesses of these policies?

Consumer Choice

Â· What is the consumers budget constraint?

Â· How does a consumer choose how much of different goods to consume?

Â· What are the income and substitution effects?

Â· How does the demand curve relate to the consumer choice problem?

Â· How does the consumer choice problem relate to labor supply and borrowing/lending behavior?

Asymmetric Information and Healthcare

Â· What is moral hazard?

Â· What is adverse selection?

Â· How do these two concepts relate to the market for insurance and healthcare?

Â· How do insurance companies try to deal with adverse selection and moral hazard?

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EDUC 411 Lecture Notes - Lecture 2: Monopolistic Competition, Wojciech, Imperfect Competition

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