ECON 1050 Lecture Notes - Perfect Competition, Social Cost, Monopolistic Competition

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lavenderyak321

8 Apr 2013

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A market structure in which large # of firms compete. Each firm produces differentiated product firms compete on product quality, price, marketing firms are free to enter/ exit industry. Small market share- each firm supplies small part of total industry output. Thus each firm has limited ability to influence price of product. Ignore other firms- firms only sensitive to average market price of product. Collusion impossible- many firms mean difficult to conspire and fix higher price. Product differentiation- makes product that is slightly different from competition. Quality- physical attributes that make it different from products of other firms. Price- downward sloping demand curve, so they can set own price and output. No barrier to enter and exit in long run cannot make an economic profit in long run. Examples: household furniture, lighting fixtures, paint, bakeries, sports and athletic things, boat building, plastic bags, clothing, etc. Economic profit maximized when marginal cost equals marginal revenue.

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12) Which of the following types of economic regulation is most likely to encourage firms to engage in cost cutting? A) entry and output restrictions B) rate of return regulation C) price cap regulation D) None of the above encourages cost cutting.

13) In monopolistic competition, firms compete on the basis of A) price only. B) price, quality, and marketing.
C) marketing only. D) quality and marketing, but not price.

14) Which of the following statements is FALSE concerning monopolistic competition? A) There are many firms. B) Firms sell a differentiated product. C) Each firm's actions influence rival firms. D) Firms are free to enter and exit.

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

A few large companies, and a few small companies. The competition still exists amongst these firms in terms of product/service, etc. What one firm does will impact others. Entry and exit into these industries are difficult. Why? Because economies of scale have been established already, making it very expensive for other firms to enter into the industry. A branch of oligopoly is called a Cartel --- the same attributes of an oligopoly, however, there is now cooperation within the firms (cooperation with output, marketing, and distribution).

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ECON 1050 Lecture Notes - Perfect Competition, Social Cost, Monopolistic Competition

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