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A theory of market structure based on the four assumptions;
1. There are many sellers and buyers. 2. Sellers sell a homogenous good. 3. Buyers and sellers have all relevant information. 4. Entry into or exit from the market is easy.
Resource Allocative Efficiency
The situation when firms produce the quantity of output at which price equals margianl cost P=MC
Second Degree Price Discrimination
A price structure in which the seller charges a uniform price per unit for one specific quantity, a lower price for an additional quantity; and so on.
Third degree Price Discrimination
A price structure in which the seller charges different prices in different markets or charges a different price to different segments of the buying population.
What are the different types of barriers?
Legal barriers, economies of scale, and exclusive ownership of a necessary resource.
The increase in costs and organizational slack in a monopoly resulting from the lack of competitive pressure to push costs down to their lowest possible level.
Kinked Demad Theory
A theory of oligopoly that assumes that if a single firm in the industry cuts prices, other firms will do likewise, but if it raises prices, other firms will not follow suit. The theory predicts price stickiness or ridgidity.
Price Leadership Theory
In this theory of oligopoly, the dominant firm in the industry determines price, and all other firms take their price as given.
In this theory of oligopoly, oligopolistic firms act as if they were only one firm in the industry.
Why is the demand curve in a monopolistic competiton downward sloping?
Because there are substitutes for its product, but not perfect substitutes, the elasticity of demand for its products is not as great as that of the perfectly competitive firm.
What are the assumptions of an oligopoly?
1. There are many buyers and few sellers. 2. Firms produce and sell either homogenous or differentiated products. 3. There are significant barriers to entry.
Why will a price taker not sell any of its produt at less the that Equilibrium Price?
He can sell all he wants at EQ price.
How do monopolistic competitiors differ from perfect competitors?
For perfect compettive firms, the elasticity of demand for its product is extremely high. There are an endless number of substitutes for the good it produces. For monopolies competitive firms the elasticiy of demand for its product is not as great as that of the perfectly competitive firm. There are substitutes for its product but not perfect substitutes.
Does the monopolistic competitor exhibit resource allocative efficiency? Why or Why not.
The monopolistic firm charges a price that is greater than marginal cost P > MC so it is not a measure of allocative efficiency.
What is assumd that becaue the monopolistic competitve firm faces a downward sloping curve, in LR-EQ, it will?
Most likely not earn any profits
Key characteristics of of an oligopoly
There are few sellers and many buyers, firms produce and sell either a homogenous product or differentiated product and there are significant barriers to entry. Interdependence is the key.
What happens to a PC industry when there is a decrease in demand?
Actual answer on the test. There is not enough information
Characteritics of a PC
1. There are many sellers and many buyers. 2. Each firm produces and sells a homogenous product. 3. Buyers and sellers have all relevant information. 4. There are no barriers to entry and exit.
What is the shape of the demand curve faced by the PC firm? Why?
The demand curve is horizontal because when the equilibrium price has been established, a single perfectly competitve firm faces a horizontal or perfectly elastic demand curve at the equilibrium price.
List and desribe the three assumptions related to the oligopoly.
1. There are few sellers and many buyers which means that the few firms are interdependents. Each one is aware that their actions influence each other. 2. Firms produce and sell a homogenous or diffentiated product. For example aluminum equals homogenous products but cars equal a differentiated product. 3. There are significant barriers to entry. Economies of scale is the most significant barrier to entry.
What does the demand curve faced by a monopolistic competitive firm look like? Explain why it is sloped this way, and what this implies about the relationship that exists between price and marginal revenue under monopolistic competition.
Because a monopolistic competitor has a downward sloping curve, the price has to be lowered to sell an additional unit of the good it produces. It has a price searcher. P> MR
Compare/Contrast oligopoly and monopolistic competition market structures.
An oligopoly has few sellers, sells homogenous or differntiated products, has significant barriers to entry and in the long run has positive economic profits. A monopolistic competition has many sellers, slightly differntiated products, no bariers to entry and in the long run has zero economic profits.l
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