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one difference between mono comp and pure comp is that:

there is some control over price in mon comp

basic features of mono comp

easy entry, many firms, differentiated products

demand curve for a monopolistically comp firm has a

neg slop and marginal revenue curve has neg slope

demand curve faced by mono comp firm

is more elastic that monopolist's demand curve

in mono comp, a firm has a limited degree of 'price-making' ability meaning

the firm will produce at min ATC

suppose some firms exit an industry (mono comp) demand curve of firm will

shift to right

not true for mono comp industry

the portion of the MC curve above AVC curve is the short-run supply curve for firm

long-run equilibrium in a mono comp industry

p > min ATC

long-run equilibrium, a profit-max firm in mono comp will produce the quantity of output where


mono comp is characterized by excess capacity b/c

firms produce at an output level less than the least-cost output

mon compe there is an underallocation of resources at the profit max level output meaning

price is greater than MC

compared to pure comp, mono compe

provides greater product differentiation at the cost of some excess capacity

compared to a purely comp firm in long-run equilibrium, the mono competitor has a

higher price and lower output

the stronger the product differentiation...

the less elastic the demand curve, and production will take place further to the left of min ATC

oligop market is consistent with

all firms making econ profit, a small number of firms in industry, and the existence of barriers to entry

low concentration radio means...

each firm accounts for a small market share of the industry

the herfindahl index is a measure of

market power in an industry

in a duopoly, if one firm increases its prices, then the other firm can

keep its price constant and thus increase its market share

prediction of kinked demand curve model is

price stability in oligopolies

kinked demand model of noncollusive oligop assumes that

rivals will ignore price increases and match price cuts

in kinked demand model, there will be vertical break in the firm's

marginal revenue curve

if output is set at the kink of kinked demand model

there are several prices at which MR = MC

major reason that firms form a cartel is to

maximize joint profits

a cartel is formed among the major firms in an industry that maximizes join profits of the firms, each firm

has the incentive to cheat by cutting its price

price leadership represents a situation where oligop firms

tacitly collude

in an oligop market there is likely to be

neither allocative nor productive effieciency

in the long run an oligop

may be able to earn positive econ profits

aspects of product differentiation

product attributes, service, location, brand name and packaging, and some control over price

mono comp

relatively large number of sellers, differentiated product, easy entry and exit, nonprice competition

mono comp efficiency

neither productive or allocative efficiency

excess capacity

gap b/n the min ATC output and the profit max output

benefits of product variety

creates tradeoff b/n consumer choice and productive efficiency; stronger pdiff, the greater the excess capacity and greater productive inefficiency; greater pdiff, the more likely firms will satisfy great diversiyt of consumer tastes


few large produces of a homo or differentiated product; have considerable control over price (mutual interdependence)

measures of industry concentration

concentration radio and herfindahl index

short comings of concentration radio

1) localized markets (pertain to nation as whole)
2) interindustry competition (comp b/n 2 products associated w/ different industries)
3) world trade (doesn't account for import compet of foreign suppliers)

profit matrix

the payoff each firm would result in from each combination of strategies

kinked-demand theory

noncollusive; match price decreases, ignore price increases

obstacles to collusion

1) demand and cost differences (when oligops face different prices and costs it is difficult for them to agree on a price)
2) number of firms (the large the # of firms the more difficult it is to create a cartel)
3) cheating
4) recession (enemy to collusion since slumping market costs increase ATC)
5) potential entry
6) legal obstacles: antitrust law

price leadership model

where 'dominant' firm initiates price changes and all other firms follow

leadership tactics

infrequent price changes
limit pricing

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