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01:220:102 Lecture Notes - Lecture 19: Normal-Form Game, Imperfect Competition, Oligopoly

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Rutgers University
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Economic
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01:220:102
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goldband

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01:220:102 Lecture Notes - Lecture 18: Natural Monopoly, Perfect Competition, Demand Curve

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01:220:102 Lecture Notes - Lecture 19: Normal-Form Game, Imperfect Competition, Oligopoly

20

01:220:102 Lecture Notes - Lecture 20: Monopolistic Competition, Demand Curve, Product Differentiation

Document Summary

An oligopoly is a type of market structure where there are very few producers selling a product with low differentiation. Oligopolist: producer in an industry that is dominated by a small number of firms(ex. Pepsi and coca cola or verizon, tmobile, and at&t. Each oligopolist has a share of market power, but less power than a monopolist. Whether a market is an oligopoly or not is determined by number of firms not size of the firms. As opposed to a monopoly which only has one firm, oligopolies have multiple firms involved and therefore makes it more difficult to dictate behavior. Profits of a large firm depend heavily on the actions taken by other large firms. Imperfect competition: no one firm has a monopoly, but producers can affect market prices. Herfindahl-hirschman index(hhi): the hhi for an industry is the sum of the squares(^2) of each firm"s share of market sales.

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Related Questions

1.

One of the conditions under which price discrimination is profitable is:
ability to identify consumer types.
inability to resell the good.
differences in demand elasticities.
all of the statements associated with this question are correct.
2.
Suppose that the demand in a particular industry is given by Qd = 500 - 2P. When the market price in the industry is $50 per unit, total demand in the industry is _________. Furthermore, assume that the entire market consists of four firms that share the market equally. The HHI under these conditions is then
225 units and 1,600.
400 units and 2,500.
225 units and 3,333.33.
400 units and 10,000.
3.
The industry elasticity of demand for gadgets is -2, while the elasticity of demand for an individual gadget manufacturer's product is -2. Based on the Rothschild approach to measuring market power, we conclude that
there is little monopoly power in this industry.
there is significant monopoly power in this industry.
the Herfindahl index for this industry is -2.
the Herfindahl index for this industry is 2.
4.
The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7. Which of the following implications is (are) correct?
In the absence of imports, the refrigerator industry in Sweden is monopolistic.
The refrigerator industry in Sweden is perfectly competitive.
The refrigerator industry in Sweden is monopolistically competitive.
None of the statements associated with this question are correct.
5.
The peak of the isoprofit curve has which of the following characteristics?
It is the point at which Monopoly profits are always achieved.
It is the point at which the isoprofit curve crosses the reaction function.
It is the point on the isoprofit curves associated with the highest profit.
It is the point on the isoprofit curves Cournot competitors can efficiently achieve collusion profits.
6.
The ranking of industries by the four-firm concentration ratio usually, but not always, reveals the same pattern as ranking by HHI. When a discrepancy is found it is usually due to the following:
The four-firm concentration indices contain data on only the largest four-firms, while the HHI are based on data for all firms in the industry.
The HHI is based on squared market shares, while the four-firm concentration ratio is not.
The four-firm concentration indices contain data on only the largest four-firms, while the HHI are based on data for all firms in the industry and the HHI is based on squared market shares, while the four-firm concentration ratio is not.
The two indices are designed to measure two different attributes of markets

1. All of the following are characteristics of long-run equilibrium for firms in a monopolistically competitive market except:

A. price equals marginal cost.

B. price equals average total cost.

C. price exceeds the minimum of the average total cost.

D. marginal cost equals marginal revenue.

2. All of the following are strategies a firm with market power can adopt to increase its profits over time except:

A. erecting barriers to entry.

B. setting price equal to the marginal costs of production.

C. mergers with, and acquisitions of, competing firms.

D. influencing the regulatory process.

3. Assume that for a particular firm's output price = $80, marginal cost = $30, average total cost = $25. Based on this information, the firm's Lerner Index is equal to:

A. 0.313.

B. 0.625.

C. 0.6.

D. 0.375.

4. Assume that when the price is $20, the quantity demanded is 9 units, and when the price is $19, the quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units?

A. $10

B. $1

C. $19

D. $20

5. Because firms produce a differentiated product, each of the firms in a monopolistically competitive market faces a demand curve that is:

A. perfectly elastic.

B. downward sloping.

C. perfectly inelastic.

D. perfectly elastic or perfectly inelastic depending on whether the firm's output is a luxury or a necessity.

6. Suppose a monopolist is producing a level of output such that MR > MC. What should the firm do to maximize its profits?

A. The firm should increase output.

B. The firm should increase the price.

C. The firm should do nothing - it wants to maximize the difference between MR and MC in order to maximize its profits.

D. The firm should hire less labor.

7. Suppose the firms in a monopolistically competitive market are earning positive economic profits. What will happen to move the market to its long-run equilibrium?

A. The demand curves faced by firms in the market will shift to the right.

B. The firms' demand curves will become less elastic.

C. More close substitutes will appear in the market.

D. Some firms will exit the market if they can't cover all of their fixed and variable costs.

8. The Lerner Index is a measure of market power that focuses on:

A. the difference between a firm's product price and its marginal costs of production.

B. the share of the market controlled by the X largest firms in the market.

C. the ratio of the price of a firm's product to the price elasticity of demand for the product.

D. the sum of the squares of the market share of each firm in an industry.

9. The measure of market power that focuses on the share of the market controlled by the X largest firms in the market is known as:

A. the Lerner Index.

B. the Herfindahl-Hirschman Index.

C. the Minimum-Efficient Scale Index.

D. a concentration ratio.

10. The monopoly characteristic of monopolistically competitive firms ensures that such firms will earn positive economic profits over the long-run.

a. True

b. False

A. A competitive firm

  1. can consider only its location in setting the price.
  2. must base its competitive price on product differentiation.
  3. has the ability to set its own price.
  4. must accept the price determined by the intersection of the market supply and demand curves.
  5. has no supply curve.

B. If a firm is making an economic profit, then

  1. the factors of production are being paid their opportunity costs.
  2. there will be no change in the number of firms if the industry is perfectly competitive.
  3. the factors of production are being paid less than their opportunity costs.
  4. the factors of production are being paid more than their opportunity costs.
  5. the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

  1. marginal revenue is greater than price.
  2. the elasticity of demand is constant.
  3. marginal revenue decreases when the price decreases.
  4. marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

  1. shut down because economic profits are negative.
  2. continue to produce as long as P > AVC.
  3. continue to produce because accounting profits are positive.
  4. set a higher price for its output.
  5. set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.