ECO100Y5 Chapter Notes - Chapter 14: Imperfect Competition, Nash Equilibrium, Product Differentiation

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An oligopoly is an industry with only a small number of producers. A producer in such an industry is known as an oligopolist. When no one firm has a monopoly, but producers nonetheless realize that they can affect market prices, a industry is characterized by imperfect competition. The herfindahl-hirschman index (hhi), the sum of the squares of the market shares of each firm in the industry, is a widely used measure of industry concentration. An oligopoly consisting of two firms is a duopoly. Sellers engage in collusion when they cooperate to raise their joint profits. A cartel is an agreement among several producers to obey output restrictions in order to increase their joint profits: by acting as if they were a single monopolist, oligopolists can maximize their combined profits. So there is an incentive to form a cartel. However, each firm has an incentive to cheat to producer more than it is supposed to under the cartel agreement.

Related Questions

. A classic example of monopolistic competition is the restaurant industry. In what ways does this industry show the characteristics of the monopolistic competition market?

2. George says, "If the amount of product differentiation in a monopolistically competitive industry is very small, the outcome in that market will not be very different than if it were a perfectly competitive industry." Explain if he is correct and how you would respond to his reasoning.

3. The duopolist dilemma is that each firm would make more profit if both picked the _______ price, but both firms pick the _____ price. Explain why they do this.

4. What are the characteristics of an oligopoly? Using the concept of duopoly and the price leadership model, discuss demand and pricing strategies in an oligopolistic market structure.

5. Critical Thinking: Most of the products you buy at a grocery store come from what type of competitive market? Why do you think this is so?

36.?To stay one step ahead of the forces of competition, a firm can adopt any one of these strategies except

-	?Cost reduction

-	?Product differentiation

-	?Operating where marginal benefits equal marginal costs

?-Develop non-fungible valuable resources

37.Which firm in an industry is likely to have higher profits?

?-Sellers with higher costs than their competitors

?-Sellers with lower costs than their competitors

-	?Sellers with the same costs as their competito

?All of the above

38.?Intense market competition is ________ for producers, since it_______.

-	?Bad; erode consumer surplus

-	?Bad, erode producer profits

-	?Good, increase the price level in the market

?Good; decrease the price level in the market

39.As the number of firms in an oligopoly increases, the magnitude of the

-	output effect increases.

-	output effect decreases.

-	price effect increases.

-	price effect decreases. Thanks!

periwinklehound312

1) A natural monopoly exists when:

a. A few firms collude to make one large firm

b. Firms enter the industry as a result of profit incentives

c. Economies of scale provide large cost advantages to having one firm produce the industry's output

d. Firms naturally maximize regardless of market structure

2) A(n) ____ is a single firm with ___, whereas a(n) ___ implies an industry with ____ firm(s) and ____ .

a. Monopoly; barriers to entry; oligopoly; few; no barriers to entry

b. Oligopoly; no barriers to entry; monopoly; many; easy entry and exit

c. Monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

d. Monopolistic competitor; barriers to entry; monopoly; one; barriers to entry

3) In monopolistic competition:

a. Each firm produces a product identical to that of every other firm in the industry

b. Firms are aware of their strategic interdependence

c. Firms earn large economic profits in the long run

d. Firms earn zero economic profits in the long run

4) A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, like wheat farming, are alike in that:

a. There are many firms in each industry

b. Firms in both types of industries produce similar but not identical products

c. Barriers to entry in both industries are large

d. Firms in both types of industries produce identical products

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ECO100Y5 Chapter Notes - Chapter 14: Imperfect Competition, Nash Equilibrium, Product Differentiation

ECO100Y5 Full Course Notes

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