ECON 1116 Chapter Notes - Chapter 16: Market Power, Economic Surplus, Externality

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salmongoose698

24 Mar 2017

School

Northeastern University

Department

Economics

Course

ECON 1116

Professor

Pritchard Robert

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Document Summary

In other words, many industries fall somewhere between the polar cases of perfect competition and monopoly. A second type of imperfectly competitive market is called monopolistic competition. This describes a market structure in which there are many firms selling products that are similar but not identical. Characteristics of a monopolistically competitive market: many sellers: there are many firms competing for the same group of customers, product differentiation: each firm produces a product that is at least slightly different from those of other firms. Thus, rather than being a price taker, each firm faces a downward-sloping demand curve: free entry and exit: firms can enter or exit the market without restriction. Thus, the number of firms in the market adjusts until economic profits are driven to zero. Profit encourages entry, and entry shifts the demand curves faced by the i(cid:374)(cid:272)u(cid:373)(cid:271)e(cid:374)t fir(cid:373)s to the left. As the de(cid:373)a(cid:374)d for i(cid:374)(cid:272)u(cid:373)(cid:271)e(cid:374)t fir(cid:373)s" produ(cid:272)ts falls, these firms experience declining profit.

Related Questions

1. Which market structure is characterized by a few interdependent firms?

A) Monopoly.

B) Perfect competition.

C) Monopolist competition.

D) Oligopoly.

2. The correct ranking (put in order) of the degree of market power (from highest to lowest) is

A) Monopoly, monopolistic competition, perfect competition, oligopoly

B) Monopoly, monopolistic competition, oligopoly, perfect competition.

C) Monopoly, oligopoly, monopolistic competition, perfect competition.

D) Oligopoly, monopoly, monopolistic competition, perfect competition.

3. The term monopolistic competition

A) is an alternate expression for monopoly

B) is used to describe perfect competition with strong entry barriers.

C) denotes an industry with one seller of many differentiated products

D) denotes an industry with many sellers of differentiated products.

ceruleanseal203

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

byzantiumfish483

1. Which of the following is a characteristic of pure monopoly?

A. close substitute products

B. barriers to entry

C. the absence of market power

D. "price taking"

2. An example of a monopoly would be

A. one of many U.S. wheat farmers

B. one of the few U.S. automakers

C. AT&T cell phone service

D. the local water company

3. In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?

A. monopoly

B. oligopoly

C. only perfect competition

D. only monopolistic competition

E. both perfect competition and monopolistic competition

4. Which of the following is the best example of a perfectly competitive market?

A. farming

B. diamonds

C. athletic shoes

D. soft drinks

E. electricity distribution

crimsonalligator541

ECON 1116 Chapter Notes - Chapter 16: Market Power, Economic Surplus, Externality

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