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17 Cards in this Set

  • Front
  • Back
What are 4 characteristics of Monopolistic Competition?
1) Large Number of Sellers
2) Easy Entry & Exit
3) Nonprice Competition
4) Only earns Normal Profit in Long Run
Monopolistic Competitor maximizes profit or minimizes loss where:
What are two kinds of oligopoly?
Homogeneous (Selling steel, copper, cement, etc)
Differentiated (Appliances, Cars, Breakfast Cereals, etc)
Oligopolies are price --?
Makers though each oligopolists must react to rivals' reactions to changes in price, output, advertising strats, etc.
Oligopoly control over price?
Limited by mutual interdependence tho collusion is possible
Oligopoly Barriers of Entry?
Significant obstacles in Growing Your Firm to Compete
Herfindahl index?
Measure of Concentration and competitiveness of an industry; Calculated as Sum of Squared Percentage Market Shares of individual firms in industry
The larger the Herfindahl index, --?
The greater the degree of market power in the industry
Why is the Herfandahl index so small in a purely competitive industry?
So many firms each have so little market power that when it is squared nearly approaches zero.
Kinked-Demand Curve Graph:
· Top segment (Elastic): Rivals ignore price increase above equilibirum
· Bottom more Steep Segment (Inelastic): Rivals match Price Decrease
· At equilibrium, MR is split btwn Top Segment's MR and Bottom Segment's MR [Connect vetically via dotted line]
Shifts in MC curve in Kinked-Demand Graph?
Up or Down causes no change in Price but does increase/decrease total profits
Oligopoly Profit-Maximizing Price?
Where "Kink"'s Quantity hits the Demand Curve
What are 6 obstacles to collusion?
1) Demand and Cost Differences (Disagreements on Profit-Maximizing Price)
2) Number of Firms (Large the Number, Harder it is to control a significant portion of the market)
3) Cheating (Game-Theory Model)
4) Recession (Avoid Profit Reduction by cutting price and gaining ACTUAL sales)
5) Potential Entry
6) Legal Obstacles: Antitrust Law
Price leadership?
Oligopolies Coordinate prices w/o outright collusion based on formal agreements or secret meetings.
· "Dominant Firm" initiates Price changes and others follow suit
Price War?
Successive and continuous price cuts by rivals as they attempt to maintain their market shares
Most comprehensive Form of Collusion?
Cartel- Formal Written Agreement specifying how each member will produce and charge
Tacit understandings?
Made on golf courses, meetings, parties in verbal agreements