econ test 3

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  1. When does profit maximize under monopolistic competition?
  2. In the long-run, every firm in monopolistic competition earns  ________
    normal profit, EP=0
  3. 6 characteristics of oligopoly:
    • few giants
    • 5-10 firms in a given market that control 75-80% of market sales
    • homogeneous (steel) OR differentiated (cars, airlines) products
    • difficult to enter OR exit
    • mutual interdependence (firm closely monitored by other like firms) (only happens under oligopoly)
    • price maker
  4. which of the following have barriers? 
    oligopoly, monopoly, monopolistic, perfect competition
    oligopoly and monopoly have barriers, monopolistic and perfect competition do not
  5. list barriers (6)
    • technology
    • financial
    • patents and copy rights
    • businesses run by gov't (USPS, DWP, etc.)
    • control of essential resources --> vertical (steel for cars), horizontal (firms in same line of business join), and conglomerate (diversification)
    • economies of scale, natural monopoly (utilities) [ATC sloping downward approaching 0]
  6. define cartel
    when firms join together to reduce the degree of competitiveness
  7. goal of any monopolist
    maximize profits
  8. price discrimination
    same product with the same cost sold to different people at different prices. (based on the elasticities of different groups)
  9. how come monopolists earn EP in long run?
    no barriers to entry
  10. how many demand curves does a monopoly have?
  11. in regards to Price and Marginal Revenue, this difference in relationship stands out when referring to oligopoly/monopoly/monopolistic competition/perfect competition...
    • oligopoly/monopoly/monopolistic ... P>MR
    • perfect competition ... P=MR
  12. which type of market is most efficient?
    perfect competition
  13. in the long-run, there exists a minimum point to ATC, only in this type of market ...
    perfect competition
  14. arbitrage
    buy low, sell high
  15. why does the demand curve slope downwards under monopolistic competition?
    product differentiation
  16. why is the demand curve horizontal for perfectly competitive markets?
    homogeneous good
  17. which is the best example of oligopoly?
    local utility
  18. a firm that experiences economies of scale?
    what does graph of ATC curve look like?
    • natural monopoly
    • ATC slopes downward towards zero
  19. if a monopoly or monopolistic demand curve is below AVC curve...
    shut down
  20. the long-run difference in Quantity between perfect and monopolistic competition
    excess capacity
  21. under which types of markets is P>MR, ALWAYS?
    monopoly and monopolistic competition
  22. 2 types of gov't regulation of monopolies
    • MC pricing --> D=MC  --> where the PMC<ATC --> EP<0 ... GOV'T MAY SUBSIDIZE 
    • AC pricing --> D=AC --> PAC=ATC --> EP=0
  23. consumer surplus
    the numerical difference between what a consumer is willing to pay and what he is asked to pay
  24. why does a monopoly price discriminate?
    • they are able to because they are price makers
    • they can maximize TR based on different customer groups' elasticity
  25. monopoly characteristics (6)
    • one seller
    • product should be very unique; no close substitutes; differentiated product
    • seller = market; thus, only one demand curve, d=D
    • price maker
    • very difficult to enter/exit due to barriers to entry
    • if P>ATC --> EP>0    if P<ATC --> EP<0
  26. monopolies control essential resources in 3 ways
    • vertical integration -- acquire main raw material manufacturing (steel --> cars)
    • horizontal integration (firms in the same line of business join to reduce competition, GM<-->Honda
    • conglomerate acquire business not related firm --> diversification
  27. monopolistic competition characteristics (5)
    • many sellers/buyers
    • sellers --> differentiated products 
    • close substitute (not perfect)
    • each seller is a price maker
    • easy to enter exit
  28. monopolistic competition in the long-run
    • P>ATC --> EP>0 --> firms enter -->S↑ P↓ UNTIL in the long-run, P=ATC --> EP=0
    • P<ATC --> EP<0 --> firms exit -->d↑ P↑-->S↓ P↑ UNTIL in the long-run, P=ATC --> EP=0
  29. why is the price level higher for monopolistic competition over perfect competition?
    differentiation ---- choices
  30. under oligopoly, why is the price level rigid/inflexible?
  31. explain why the demand curve under oligopoly is kinked?
    • because of speculation from competitors the price level is rigid/inflexible
    • if price goes up then curve is elastic
    • if price goes down then curve is inelastic
    • so, if firm lowers Price then its Quantity will raise slightly because other firms will follow; inelastic and TR↓
    • but, if firm raises its Price then Quantity will go down and other firms will not follow; elastic and TR↓
  32. excess capacity
    the long-run difference in Quantity between perfect and monopolistic compotition
Card Set:
econ test 3
2014-07-25 20:42:52
econ test

econ test 3
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