question
Oligopoly
answer
a market structure is which only a few sellers offer similar or identical products
question
Monopolistic Competition
answer
a market structure in which many firms sell products that are similar but not identical
question
What are the three attributes of monopolists competition?
answer
Many sellers, product differentiation, and free entry and exit
question
What is product differentiation?
answer
each firm's product is slightly different, so each firm is a price maker and faces a downward-sloping demand for its product
question
How is monopolistic competition like monopoly?
answer
Monopolistic competition is like monopoly because firms face a downward-sloping demand curve, so price exceeds marginal cost.
question
How is monopolistic competition like perfect competition?
answer
Monopolistic competition is like perfect competition because, in the long run, price equals average total cost, as free entry and exit drive economic profit to zero
question
Does a monopolistic competitor produce too much or too little output compared to the most efficient level? What practice consideration make it difficult for policy makers to solve this problem?
answer
Low to modest
question
How might advertising reduce economies well-being?
answer
Critics argue that advertising manipulates people's tastes to create a desire that otherwise would not exist and that it impedes competition by increasing the perception of produce differentiation, which increases brand loyalty, causes demand to be more elastic, and allows the firm to charge a greater markup over marginal cost.
question
How might advertising increase economic well-being?
answer
Defenders of advertising argue that it provides information to customers about prices, the existence of new products, and the location of retail outlets. The information increases competition because consumers are away of price differentials and it provides new firms with the means to attract customers from existing firms. Increases competition and reduces prices.
question
How might advertising have no apparent informational content in fact convey information to consumers?
answer
It can provide a signal of product quality. Firms will only spend a great deal on advertising only if they feel their product is high quality. Consumers may be rational to try new products that are expensively advertised because it symbolizes high quality.
question
Explain two benefits that might arise from the existence of brand names.
answer
defenders argue that brand names ensure high quality because 1) brand names provide information about the quality of the product and 2) brand names give firms the incentive to maintain high quality
question
Explain two disadvantages that might arise from the existence of brand names.
answer
Critics argue that brand names cause consumers to perceive difference between goods that do not exist
question
How does long-run equilibrium under monopolistic competition differ from the long-run equilibrium under perfect competition?
answer
Excess capacity and markup over marginal cost
question
What is excess capacity?
answer
monopolistically competitive firms produce in the downward-slopping portion of their ATC curve, therefore, they produce a quantity that is less than that which would be produced at the efficient scale of the firm.
question
What is Markup over marginal cost?
answer
a monopolistically competitive firm charges a price that exceeds its marginal cost. a competitive firm charges a price that quals its marginal cost.
question
Why is monopolistic competition inefficient?
answer
because price exceeds marginal cost, some units that buyers valued in excess of the cost of production are not produced and consumed. This is the standard dead weight loss associated with monopoly. And the number of firms in the market may not be "ideal" because the entering firm only considers its own profits but its entry generates two external effects.
question
What are the two external effects that a firm generates when entering a market?
answer
the product-variety externality (entry creates consumer surplus in the new market, which is a positive externality). the business-stealing externality (entry causes other firms to lost customer and profits and reduces existing surplus, which is a negative externality)
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
