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ECO101H1 Chapter Notes - Chapter 14: Marginal Revenue, Bargaining Power, Game Theory

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School
UTSG
Department
Economics
Course
ECO101H1
Professor
Dwayne Benjamin

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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Document Summary

Oligopoly: an industry with only a few sellers. Each of these firms knew that their decision on how much to produce would affect market price; they had some market power. Imperfect competition: a situation in which firms compete but also have market power which allows them to affect market prices. Two forms of imperfect competition: oligopoly and monopolistic competition. The most important source of oligopoly is increasing returns to scale. This gives big producers a cost advantage over smaller ones. When effects are strong, they lead to monopoly; if not strong, they lead to an industry with smaller firms. *what we learn about competitive markets cost, entry & exit & efficiency holds true despite that many industries are not perfectly competitive. Duopoly: an industry in which there are only two producing firms. In a perfectly competitive industry, each firm would want to produce more as long market price was above marginal cost.

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Related Questions

. A classic example of monopolistic competition is the restaurant industry. In what ways does this industry show the characteristics of the monopolistic competition market?
2. George says, "If the amount of product differentiation in a monopolistically competitive industry is very small, the outcome in that market will not be very different than if it were a perfectly competitive industry." Explain if he is correct and how you would respond to his reasoning.
3. The duopolist dilemma is that each firm would make more profit if both picked the _______ price, but both firms pick the _____ price. Explain why they do this.
4. What are the characteristics of an oligopoly? Using the concept of duopoly and the price leadership model, discuss demand and pricing strategies in an oligopolistic market structure.
5. Critical Thinking: Most of the products you buy at a grocery store come from what type of competitive market? Why do you think this is so?

A. A competitive firm

  1. can consider only its location in setting the price.
  2. must base its competitive price on product differentiation.
  3. has the ability to set its own price.
  4. must accept the price determined by the intersection of the market supply and demand curves.
  5. has no supply curve.

B.Ā If a firm is making an economic profit, then

  1. the factors of production are being paid their opportunity costs.
  2. there will be no change in the number of firms if the industry is perfectly competitive.
  3. the factors of production are being paid less than their opportunity costs.
  4. the factors of production are being paid more than their opportunity costs.
  5. the firm will exit the industry

C.Ā Along a downward-sloping monopoly demand curve,

  1. marginal revenue is greater than price.
  2. the elasticity of demand is constant.
  3. marginal revenue decreases when the price decreases.
  4. marginal revenue is equal to zero when the price is equal to zero

D.Ā If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

  1. shut down because economic profits are negative.
  2. continue to produce as long as P > AVC.
  3. continue to produce because accounting profits are positive.
  4. set a higher price for its output.
  5. set a lower price for its output

E.Ā For a perfectly competitive firm, the demand curve is

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

F.Ā A firm in a(n) industry will have the most elastic demand curve

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

G.Ā If the demand curve of a monopolist is in the inelastic range, then

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

I.Ā Under which market structure do firms face the flattest (most elastic) demand curve?

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

J.Ā At the point of long-run equilibrium for a perfectly competitive firm,

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.

1. When a profit-maximizing firm produces, they will be producing at that output at which marginal cost = marginal revenue:

  • all of the time
  • some of the time
  • on rare occasions
  • none of the time

2. Economics Profit is:

  • the same as accounting profit
  • sales minus explicit costs and implicit costs
  • sales minus variable costs and fixed costs
  • opportunity cost only

3. A market structure with so many firms that no one firm has any influence over price, and firms produce an identical product is called:

  • monopoly
  • oligopoly
  • perfect competition
  • monopolistic competition

4. Which of the following is NOT a characteristic of a perfectly competitive market?

  • identical products
  • perfect mobility
  • perfect knowledge
  • price maker

5. The demand curve in a perfectly competitive market is perfectly elastic.

  • true
  • false