ECN 104 Chapter Notes - Chapter 10: Monopolistic Competition, Monopoly Price, Marginal Revenue

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coffeehorse876

12 Apr 2016

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This is due to a monopoly"s economic, technological, legal or some other type of advantage: non-price competition: the product produced by a monopolist may be either standardized (as with natural gas and electricity) or differentiated (as with. Monopolists that have standardized products engage mainly in public relations advertising, whereas those with differentiated products sometimes advertise their products" attributes. Government-owned or government-regulated public utilities natural gas, electric companies, the water company, tv cable companies and local telephone companies. There are several near-monopolies : 80% of the world"s computer operating system is windows, 70% of the world"s phones are apple, and intel produces 90% of processors. Monopoly and oligopoly: these two market structures combine, in differing degrees, characteristics of perfect competition and monopoly. Barriers to entry: anything that artificially prevents the entry of firms into an industry. Somewhat weaker barriers may permit oligopoly (oligopoly)

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13. One of the limitations of Five Forces is that:

a. These tools reduce producer surplus

b. For one firm to increase profit, it takes it from other participants in the industry

c. Does not provide a firm with sustainable competitve advantage

d. both b & c.

15. All these are characterisctics of a monopoly except,

a. There is one seller of the product

b. Has few substitutes

c. Controls a large share of the market

d. Controls a small share of the market

22. Industries with high barriers to entry

a. Pushes profits to normal returns

b. increases the likelihood of firms entering the industry

c. help firms sustain profits

d. increases the number of competitors

14. How does Ebay differ from an economist's view of a perfect competitve market?

a. Ebay has few buyers whereas perfect competitve industry assumes many buyers

b. Ebay has few sellers whereas perfect competitve industry assumes many sellers

c. There is limited information in ebay whereas perfect competitive industry assumes full information for both buyers and sellers

d. There is no difference between these two markets

26. Low cost strategies are usually found in industries where

a. Products are not particularly differentiated

b. Price competion tends to be fierce

c. Both a and b

d. None of the above

Cigarettes - Price Elasticity of demand = - 0.67

A. Cigarettes

B. Alcohol

C. Sodas

D. None of the above

2. The demand for insulin will be ______________ than the demand for a Caribbean cruise in general

a. More elastic

b. More inelastic

c. Less elastic

d. Less inelastic

11)

A constant-cost, perfectly competitive industry experiences a permanent increase in demand. In adjusting to this change, what will happen to the price of the product?

	It will increase in the short-run and then decrease in the long-run, but end up above its original level in the long-run.
	It will increase in the short-run and then increase further in the long-run.
	It will increase in the short-run and then decrease back to its original level in the long-run.
	It will increase in the short-run and then decrease below its original level in the long-run.
	It will decrease in the short-run but return to its original level in the long-run.

12)

Assume that a perfectly competitive firm owns or rents a higher-quality resource that results in lower average total costs and higher economic profits in the short run. What will happen in the long-run?

	The price of the higher-quality resource will be bid upward resulting in economic rents and equalizing costs across firms.
	New firms will enter and compete with any excess profits away.
	None of the other answers is correct.
	The government will tax away any excess profits.
	The firm with the higher-quality resource will earn positive economic profits in the long run.

13)

Which of the following are characteristics of long-run equilibrium?

	No firm has an incentive to change its level of output.
	No firm has an incentive to change its plant size.
	Economic profit is zero
	All of the above
	None of the above

14)

Which of the following statements is consistent with the textbookâs analysis of perfect competition?

	Although individual perfectly competitive firms wonât pay to advertise, the industry as a whole may well advertise.
	Higher costs for one firm in the industry will result in that firm charging a higher price than the other firms in the industry.
	If all the firms in an industry charge an identical price for their products, this is clear evidence of collusive behavior.
	All of the above
	None of the above

15)

The assumptions that define the market structure known as monopoly include which of the following?

	High barriers to entry.
	There is one seller.
	There are no close substitutes available.
	All of the above
	None of the above

amethystbear647

Please answer the following questions. Show your work and then select A, B, C or D as your final answer. Thanks.

Barbershops in a large city would seem to be an example of competitive markets since there are many sellers operating relatively small shops, each seller takes the price of haircuts as given, and the products (haircuts) are very similar between different shops.

Question 1

How could you argue that the barbershop market is not competitive?

Select one:
a. Many barbershops may be locally-owned but are franchises of a single major corporation. Thus, the market is not competitive since it is ultimately only served by one supplier.
b. Each barbershop sells a very differentiated product to its clients since it is rare that two clients receive the exact same haircut (perfect substitute).
c. Since barbershops do not sell any physical or tangible items to customers, the prices charged are not constrained by market forces and can be unusually high or low.
d. Most barbershops only serve clients who live relatively close by. A barbershop on one side of town usually does not attract clients who live or work many miles away on the other side of town. Thus, barber shops tend to only compete with the relatively few other barbershops that are nearby.

Question 2

Is it possible that each barbershop could face a demand curve that is not perfectly elastic?

Select one:
a. No; each barbershop in a large city is indistinguishable from the others (i.e., they are perfect substitutes), and so the demand for any individual barbershop is perfectly elastic.
b. No; since clients are not willing to accept price changes for their haircuts from one month to the next (e.g., $15 haircut this month, $20 haircut next month, etc.), the price will remain constant in the long run and thus demand is perfectly elastic.
c. Yes; if they have some degree of market power (e.g., they can charge slightly higher prices since clients will not stop at every barbershop in the city to find the cheapest price), then they will not face perfectly elastic demand.
d. Yes; demand is only perfectly elastic if the demand curve is upward-sloping, and barbershop demand is downward-sloping.

Question 3

How profitable do you expect barbershops to be in the long run?

Select one:
a. Since they are usually very small, most barbershops will be unable to compete with larger firms with higher fixed and variable costs. Barbershops should expect losses in the long run.
b. Barbershops have the ability to set their own price above the market equilibrium price for a considerable length of time given their small size and the sheer number of other barbershops. Most individual barbershops will enjoy positive economic profit in the long run.
c. Improvements in hair-cutting technology, and the difficulty of new entrepreneurs entering this market, will guarantee above-normal profits for barbershops for the next few decades.
d. Even with a small amount of market power due to attracting only local clients, it is still relatively easy to enter and exit the barbershop industry. Long-run profits will likely be driven down close to zero.

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ECN 104 Chapter Notes - Chapter 10: Monopolistic Competition, Monopoly Price, Marginal Revenue

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