EC120 Lecture Notes - Lecture 20: Monopolistic Competition, Economic Surplus, Marginal Cost

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21 Dec 2015

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Ec120 lecture #20: monopolistic competition (continued) & oligopoly. 20% of revenue for advertising firms that sell homogeneous products spend nothing for advertising for the economy as a whole, spending on advertising comprises about 2% of total firm revenue. The debate over advertising the critique of advertising: advertising manipulates people"s tastes, advertising impedes competition the defence of advertising, advertising provides information to customers, advertising fosters competition. The equilibrium for an oligopoly consider what happens if jack and jill decide separately how much water to produce. Nash equilibrium: a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen. Other examples of the prisoner"s dilemma two examples in which self-interest prevents cooperation and leads to an inferior outcome for the parties involved: advertising o common resources. Cartels sometimes do manage to maintain collusive arrangements, despite the incentive for individual members to defect.

Related Questions

21)

Compared to the results in a perfectly competitive market, a monopoly does which of the following?

	It charges a higher price.
	It charges a price greater than the marginal cost.
	It produces less output.
	All of the above
	None of the above

22)

"X-inefficiency" refers to the idea that

	government restrictions on competition create a monopoly, which results in inefficiency.
	the cost of rent-seeking activity should be added to the welfare cost of monopoly.
	Generation X is less efficient due to a lack of competitive spirit.
	a lack of competitive pressure results in a monopoly not keeping its costs down to the lowest possible level.
	price discrimination results in inefficiently low cross-elasticities of demand.

23)

Firms in which of the following market structures can engage in price discrimination?

	monopoly
	oligopoly
	monopolistic competition
	All of the above
	None of the above

24)

Monopolistic competition and perfect competition are in all of the following ways except

	Barriers to entry are low in both
	There are many firms in both
	Firms in both produce the output level where MR=MC
	Nonprice competition is important in both

25)

To get rid of excess capacity from the monopolistic competition in the long run, what would have to be given up?

	Free entry and exit.
	economic rent
	resource allocative efficiency
	differentiated product
	productive efficiency

taupeant454

1. if the government attempts to break up a natural monopoly to enforce competition in an industry

A. the average cost of producing the good will increase

B. the smallest firm will have a significant cost advantage over the larger, less efficient firms

C. the average cost of producing the good will decrease

D. the price paid by consumers will be expected to remain the same.

2. which statement is true?

A. the monopolistic competitor always makes a profit in the short run

B. the monopolistic competitor operates at peak efficiency

C. product differentiation takes place in the minds of the buyers

D. none of these statements is true

3. Price discrimination

A. occurs when a good or service is resold

B. is prohibited by law

C. occurs when a seller charges two or more prices for the same good or service

D. occurs when the seller charges different prices for different quality products

4. Monopolistic competition may lead to each of the following except

A. inefficiency

B. overdifferentiation

C. overcapacity

D. monopoly profits

5. In the long run in monopolistic competition

A. most firms are making a profit

B. the absence of entry barriers ensures that there are no profits

C. economies of scale ensure that there are no profits

D. most firms are losing money

6. Price discrimination means

A. charging different prices for identical goods that have identical production costs

B. paying wages according to race or sex rather than productivity

C. exploiting the working masses by charging the highest single price possible.

D. eliminating all costs so that only pure profits are realized

7. The definition of monopolistic competition includes

A. few firms and ease of entry and exit

B. few firms and barrieres to entry and exit

C. many firms and barriers to entry and exit

D. many firms and ease of entry and exit

8. Which statement is true?

A. there are many firms in a monopolistically competitive industry.

B. monopolistic competitors produce an identical product

C. in order for product differentiation to take place, there must be clear physical differences amont the products sold

D. none is true

9. Long-run equilibrium for firms in monopolistically competitive industries is similar to that for firms in perfect competition in that

A. price equals minimum possible average total cost

B. price equals marginal cost

C. marginal revenue equals average total cost

D. price equals average total cost

10. Which statement is false?

A. Oligopolies are illegal in most states

B. most oligopolies engage in outright collusion

C. Ford motor company is an oligopoly

D. none of these statements is false

1. When a firm is in a monopolistic competition market, if the firm sells 25 goods at a product price of $10, what is the marginal revenue per unit of the good sold if it sells 5 additional goods when it reduced the product price to $9.

A. $270 B. $20 C. $4 D. $2.50

2. An article in the New York Times on technology in the 1990s, Michael Lewis wrote, 'The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge.' Lewis meant what when he said the benefits of new technology were "passed right through to consumers free of charge'?

A. In perfect competition, price equals the marginal cost of production. In this sense, consumers receive the new technology 'free of charge.'

B. In perfect competition, consumers place a value on the food equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology 'free of charge.'

C. In the long run, price equals the lowest possible average cost of production. In this sense, consumers receive the new technology 'free of charge.'

D. Firms in perfect competition are price takers. Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology being "passed right through to consumers free of charge.

3. 'The perfectly competitive market structure benefits consumers because.

A. Firms are forced by competitive pressure to be as efficient as possible.

B. Firms produce high-quality goods at low prices.

C. Firms add a much smaller markup over average cost than firms in any other type of market structure.

D. Firms do not produce goods at the lowest possible price in the long run.

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EC120 Lecture Notes - Lecture 20: Monopolistic Competition, Economic Surplus, Marginal Cost

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