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When does profit maximize under monopolistic competition?
In the long-run, every firm in monopolistic competition earns ________
normal profit, EP=0
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
which of the following have barriers?
oligopoly, monopoly, monopolistic, perfect competition
oligopoly and monopoly have barriers, monopolistic and perfect competition do not
list barriers (6)
- 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]
when firms join together to reduce the degree of competitiveness
goal of any monopolist
same product with the same cost sold to different people at different prices. (based on the elasticities of different groups)
how come monopolists earn EP in long run?
no barriers to entry
how many demand curves does a monopoly have?
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
which type of market is most efficient?
in the long-run, there exists a minimum point to ATC, only in this type of market ...
buy low, sell high
why does the demand curve slope downwards under monopolistic competition?
why is the demand curve horizontal for perfectly competitive markets?
which is the best example of oligopoly?
a firm that experiences economies of scale?
what does graph of ATC curve look like?
- natural monopoly
- ATC slopes downward towards zero
if a monopoly or monopolistic demand curve is below AVC curve...
the long-run difference in Quantity between perfect and monopolistic competition
under which types of markets is P>MR, ALWAYS?
monopoly and monopolistic competition
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
the numerical difference between what a consumer is willing to pay and what he is asked to pay
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
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
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
monopolistic competition characteristics (5)
- many sellers/buyers
- sellers --> differentiated products close substitute (not perfect)
- each seller is a price maker
- easy to enter exit
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
why is the price level higher for monopolistic competition over perfect competition?
differentiation ---- choices
under oligopoly, why is the price level rigid/inflexible?
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↓
the long-run difference in Quantity between perfect and monopolistic compotition