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Hair salons in cities are an illustration of
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Monopolistic competition
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firms in a monopolistically competitive industry produce
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Differentiated products
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monopolistic competitive firms in the long run earn
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zero pure economic profits
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The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will
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Produce at the level in which price equals long-run average cost
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Characteristics of monopolistic competition
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many small sellers, differentiated product, easy market entry/exit
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entry of new firms will occur in a monopolistic competitive industry until
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economic profit equals zero
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In Exhibit 9-8, the short-run profit-maximizing output for the monopolistic competitive firm is
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400 units per day
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In Exhibit 9-8, the short-run profit per unit of output for the monopolistic competitive firm is
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$5
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In Exhibit 9-8, the maximum long-run economic profit earned by this monopolistic competitive firm is
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zero
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An oligopoly is a market structure in which
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There are a few firms selling either a homogeneous or differentiated product
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Mutual interdependence among firms in an oligopoly means that
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it is difficult to know how firms will react to decisions of rivals
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A common characteristic of oligopolies is
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interdependence in pricing decisions
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Which of the following is an outcome of advertising for a monopolistically competitive firm?
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long-run average costs shift upward
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Which of the following is true about advertising?
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both A and B are correct
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which of the following best described a cartel?
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A group of cooperating oligopolists that jointly reduce output and raise price in imitation of a monopolist. When entry is very costly, these high prices can persist.
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Which of the following is true about an oligopoly equilibrium in comparison with equilibrium under similar circumstances but with perfect competition?
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Output is smaller and price is higher than under perfect competition
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Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?
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monopoly
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Assume costs are identical for the two firms in 9-9. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by
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Widget Co. charging the high price and Ajax Co. charging the high price
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Suppose costs are identical for the two firms in Ex 9-9. If both firms assume the other will compete and charge a lower price, equilibrium will be established by
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Widget Co. charging the low price and Ajax Co. charging the low price
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Suppose costs are identical for the two firms in 9-9. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by
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Widget Co. charging the high price and Ajax Co. charging the high price
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