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ECON-1020 Chapter Notes - Chapter 14: Monopolistic Competition, Substitute Good, Perfect Competition

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brownmule668
3 Feb 2020
School
Vanderbilt University
Department
Economics
Course
ECON-1020
Professor
Heather Luea

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Document Summary

Key ideas: monopolistic competition and oligopoly lie between perfect competition and monopoly. In both of these markets, the seller must recognize actions of competitors. In oligopolies, economic profits in the long run can be positive. In monopolistically competitive markets, entry and exit drive economic profits to zero in the long run. 14. 2 oligopoly: tricky to analyze because all sorts of market outcomes can happen depending on the circumstances, can be divided into two categories/models, oligopoly model with homogeneous (identical) products. Similar to monopoly model, but key difference that oligopolist must recognize behavior of competitors: oligopoly model with differentiated products. Similar to monopolistic competition market structure with the major exception that entry is impeded in the oligopoly and not in monopolistically competitive market: oligopolist"s problem. Shares similarities with perfect competition and monopoly: two unique features: The idea is to set mr = mc.

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Related Questions

A major difference between monopolistic competition and perfect competition is:

a. there are barriers to entry in monopolistic competition. There are no barriers to entry in perfectly competitive markets.

b. monopolistically competitive firms sell differentiated products. Perfectly competitive firms sell identical products.

c. government regulation restricts the ability of monopolistically competitive firms to change their prices. Perfectly competitive firms face no price regulation.

d. the market demand curve in a monopolistically competitive market slopes downward. The market demand curve in a perfectly competitive market is horizontal

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

25. One difference between perfect competition and monopolistic competition is A) firms in a perfectly competitive market produce similar but slightly different products. B) in perfect competition, the product produced has no close substitutes. C) monopolistic competition has barriers to entry, whereas perfect competition has none. D) a small number of firms compete in a monopolistically competitive market and a large number of firms compete in a perfectly competitive market. E) firms in monopolistic competition have some degree of market power.