ECN 104 Lecture Notes - Perfect Competition, Natural Monopoly

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lavenderfox977

18 Mar 2013

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In a perfectly competitive market, there are many firms, none of which is large in size. In contrast, in a monopolistic market there is only one firm, which is large in size. This one firm provides all of the market"s supply. Hence, in a monopolistic market, there is no difference between the firm"s supply and market supply. First, there is only one firm operating in the market. These barriers are so high that they prevent any other firm from entering the market. Third, there are no close substitutes for the good the monopoly firm produces. Because there are no close substitutes, the monopoly does not face any competition. A barrier to entry is anything that prevents firms from entering a market. Many types of barriers to entry give rise to a monopolistic market structure.

Related Questions

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

2) One factor that distinguishes a monopoly from monopolistic competition is that A) barriers to exit exist in monopolistic competition. B) firms in monopolistic competition practice collusion. C) firms are price-takers in monopolistic competition. D) no barriers to entry exist in a monopoly. E) close substitutes are available in monopolistic competition.

A monopoly is characterized by all of the following except

a. there are only a few sellers each selling a unique product.

b. entry barriers are high.

c. there are no close substitutes to a firm's product.

d. the firm has market power.

indigomarten625

ECN 104 Lecture Notes - Perfect Competition, Natural Monopoly

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