Microeconomics Mcconnell Brue Flyn 18Th Chptr 11

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1.Identify the characteristics of monopolistic competition.

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1. a relatively large number of sellers
2. differentiated Products(often promoted by heavy advertising)
3.easy entry to, and exit from, the industry

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2.How do the number of sellers affect companies in monopolistic competition?

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Small market shares- each firm has a small percentage of the market
Non collusion-the presence of a relatively large number of firms
Independent action-with numerous firms, there is no feeling of interdependance.

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3.In what ways are products differentiated?

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gold, platinum, credit cards

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4.How easy is it for firms to enter into monopolistically competitive industries?

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it should be pretty simple, economies of scale are not important.

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5.What is non-price competition?

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makes price less of a factor in the consumer purchases and make product differences a great factor.
advertising,

Front 6

6.Use your own experiences to identify some industries that are monopolistically competitive

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fast food, golf course, resorts,

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7.How is the concentration ratio determined?

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expressed as a percentage

4 firm concent= output of 4 largest firms/total ouput in the industry

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8.What is the Herfindahl Index?

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take your market share and square it.

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9.Is the demand curve of a monopolistically competitive firm more (or less) elastic than a pure monopoly? Why?

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no, for two reasons, the monoplolistic competitor demand is not perfectly elastic like that of the pure competitor has few rivals, second it's products are differentiated so they are not perfect substitutes.

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10.In the long run, can monopolistically competitive firms continue to earn economic profits? Why?

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No,
economic profits disapear.

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11.In the long run, are monopolistically competitive firms efficient?

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NO,

not productive or allocative efficient, Your tastes change.

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12.What is “excess capacity”?

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The gap between the minimum ATCoutput and the profit maximizing output.
-plant and equipment are under utilized.
-too many strip malls, theatres

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13.Does product variety help or hinder a monopolistically competitive firm?

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Helps,
Options for the consumer,

Front 14

14.What is an oligopoly?

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a market dominated by a few large producers of a homogenous or differentiated product.

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15.What is the difference between a homogeneous oligopoly and a differentiated oligopoly?

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homogeneous- are mainly industrial products (steel,zinc,lead, cement)
differentitated-are consumer goods industries(automobilies, tire, household)

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16.How much control over price does an oligopoly have?

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each firm is a "price maker" like the monopolist, it can set its price and output levels to maximize its profit. But unlike the monopolist, which has no rivals, the oligopolist must consider how its rivals react to any change in price,output,product characteristics, or advertising.

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17.Are there any barriers to entry for oligopolies?

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yes
The same barriers that create pure monopoly also contribute to the creationof oligopoly.

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18.What effect do mergers have upon oligopolies?

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the merging, or combining of two or more competing firms may substantially increase their market share, and this in turn may allow the new firm to achieve greater economies of scale.

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19.How do interindustry competition and import competition differ?

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interindustry- is competion between two products associated with different industries.
import- looks at world trade and the affect of imports on the industry.

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20.What is game theory? How does it affect oligopolies?

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the study of how people behave in stategic situations.
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21.What is collusion? Is it an effective technique for oligopolies to use?

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-cooperation with rivals
-by agreeing to a high price policy two firms could benefit from increased profit.

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22.Describe the characteristics of the kinked-demand theory.

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23.What constitutes a cartel? Why do they exist? Where are they likely to be headquartered? How effective are they?

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- a group of producers that typically creates a formal written agreement specifying how much each member will produce and charge. Output must be contolled

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24.What is a gentlemen’s agreement?

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an unwritten, informal understanding.

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25.What are the basic premises of the price leadership model?

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entails a type of implicit understandingby which oligopolist can coordinate prices without engaging in outright collusionbased on formal agreements and secret meetings.

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26.What impact does advertising have on oligopolies?

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may affect prices, competition, and efficiency both positively and negatively, depending on the circumstance.
Positive impact consumers are well informed and utilize advertising to complete research. Negative- consumers could be swayed by advertising for a inferior product(ie sports figure uses it)

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27.Identify some of the positive and negative aspects of advertising.

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28.Are oligopolies efficient?

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Front 29

29.THE LAST WORD: Oligopoly in the Beer Industry
How have the concepts you studied about oligopolies affected the beer industry?

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