Module 67: Introduction to Monopolisitic Competition

Save this PDF as:

Size: px
Start display at page:

Download "Module 67: Introduction to Monopolisitic Competition"

Transcription

1 Module 67: Introduction to Monopolisitic Competition Schmidty School of Economics

2 Learning Targets I Can

3 Key Economic Concepts For This Module: Firms in monopolistic competition have downward sloping demand curves because their products are differentiated from the product of their rivals. This gives firms some pricing power, and firms maximize profit by setting output where MR=MC. In the short run, firms can earn economic profits if P>ATC, or can incur losses if P<ATC. In the long run, entry and exit causes firms to earn normal profits. Long-run equilibrium occurs at an output where P=ATC and the demand curve is tangent to the ATC curve. Because firms do not produce the level of output where ATC is minimized, it is said that monopolistically competitive markets have excess capacity. Because price exceeds marginal cost, deadweight loss exists, but this inefficiency is offset by the many diverse products from which consumers can choose

4 Module Layout I. Understanding Monopolistic Competition A. Monopolistic Competition in the Short Run B. Monopolistic Competition in the Long Run II. Monopolistic Competition versus Perfect Competition A. Price, Marginal Cost, and Average Total Cost B. Is Monopolistic Competition Inefficient?

5 I. Understanding Monopolistic Competition This market structure shares characteristics with both perfect competition and monopoly. A quick review of those characteristics: Many firms exist in the market, but not as many as perfect competition (dozens vs. thousands). The product is differentiated. Each firm has some ability to set the price of their product. There are no barriers to entry or exit. Unlike oligopoly, there is little opportunity for tacit collusion as there are too many firms in the industry for it to be successful. The only real opportunity for strategic behavior is to advertise to consumers the message that their differentiated product is better than the similar, but different, rival products. A good example of monopolistic competition is the local market for restaurants, retail groceries or clothing stores.

6 A. Monopolistic Competition in the Short Run Because firms have a differentiated product, the demand for their product is downward sloping. The firm maximizes profit the same way all of the other firms do: Q where MR=MC The price is found by going vertically to the demand curve. The rectangle of profit is found by locating ATC at the output Q. These profits and/or losses in the short run will not last in the long run because it is easy for firms to enter and exit monopolistic competition in the long run.

7 B. Monopolistic Competition in the Long Run Short-run profits attract entry into the market. Demand and marginal revenue for existing firms products declines (shifts to the left), as there are more similar products available to the same number of consumers. A weaker demand causes prices to fall. Lower prices cause economic profits to fall (the profit rectangle is getting smaller). Entry stops when normal profits are made (firms are breaking even). Duffka School of Economics-67

8 B. Monopolistic Competition in the Long Run What does this mean? The only way for firms to break even is for P*=ATC so there is no profit or loss rectangle. Since price comes from the demand curve, the only way for P=ATC is for the demand curve to touch ATC at the output Q, where MR=MC. In our graph, the only place where this happens is where the downward-sloping demand curve is just tangent to the U-shaped ATC curve at the output Q.

9 II. Monopolistic Competition versus Perfect Competition Perfect Competition The long-run level of output is where P=MR=MC=ATC. Economic profits are zero; a normal profit is earned. Demand is horizontal to the firm. Monopolisitic Competition The long-run level of output is where P=ATC>MR=MC. Economic profits are zero; a normal profit is earned. Demand has a negative slope. Duffka School of Economics-67

10 II. Monopolistic Competition versus Perfect Competition ü Another difference, referred to as excess capacity, between the two market structures. ü In monopolistic competition, firms do not produce the level of output at which ATC is minimized ü By extension, the entire industry does not produce these products at the lowest possible cost.

11 B. Is Monopolistic Competition Inefficient? ü In the Monopoly module, we saw that deadweight loss exists when output stops prior to the point where P=MC. Any time price is not equal to marginal cost, efficiency can be improved. ü In monopolistic competition, P>MC so deadweight loss exists, and inefficiency exists. Because there is more competition for consumers, the wedge between price and marginal cost is lower in this market structure than it was in monopoly, so the degree of DWL is smaller in monopolistic competition. ü Can we live with some DWL? ü Probably. After all, the reason why P>MC is because firms have differentiated products that allows them some degree of pricing power similar to, but not as significant as, a monopolist. ü This DWL might be called the price of variety. The monopolistically competitive restaurant industry is much preferred (though inefficient) to the perfectly competitive version where all menus are the same.

12 Practice Question #1 1. Which of the following is a characteristic of monopolistic competition?a. a standardized productb. many sellersc. barriers to entryd. positive long-run profitse. a perfectly elastic demand curve

13 Practice Question #2 2. Which of the following results is possible for a monopolistic competitor in the short run? I. positive economic profit II. normal profit III. lossa. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III

14 Practice Question #3 3. Which of the following results is possible for a monopolistic competitor in the long run? I. positive economic profit II. normal profit III. lossa. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III

15 Practice Question #4 4. Which of the following best describes a monopolistic competitor s demand curve? a. upward slopingb. downward slopingc. U- shapedd. horizontale. vertical

16 Practice Question #5 5. The long-run outcome in a monopolistically competitive industry results ina. inefficiency because firms earn positive economic profits.b. efficiency due to excess capacity.c. inefficiency due to product diversity.d. efficiency because price exceeds marginal cost.e. a trade-off between higher average total cost and more product diversity.

17 2007 Free Response (B) 1. Assume that the cellular telephone company industry is monopolistically competitive. a. Assume that cellular manufacturers are earning short-run economic profits. Draw a correctly labeled graph for a typical firm in the industry and show each of the following. i. The profit maximizing output and price ii. The area representing economic profit (b) At the profit-maximizing price you identified in part (a), would the typical firm s demand curve be price inelastic? Explain. (c) Given the information in part (a), what happens to the demand curve for the typical firm in the long run? Explain. (d) Using a new correctly labeled graph, show the profit-maximizing output and price for the typical firm in the long run. (e) Does the typical firm produce an output level that minimizes its average total cost in the long run? (f) In long-run equilibrium, does the typical firm produce the allocatively efficient level of output? Explain.

18 2007 Free Response (B) 1. Assume that the cellular telephone company industry is monopolistically competitive. a. Assume that cellular manufacturers are earning short-run economic profits. Draw a correctly labeled graph for a typical firm in the industry and show each of the following. i. The profit maximizing output and price ii. The area representing economic profit 4 Points: Correctly Labeled 1(a) ONE Point: Correctly Labeled graph with downward-sloping demand & a MR curve below the demand curve. ONE Point: Profit maximization at Q* at MC=MR ONE Point: P* on the demand curve above MC=MR ONE Point: Showing the correct area of profit (P* -ATC) Q*

19 2007 Free Response (B) (b) At the profit-maximizing price you identified in part (a), would the typical firm s demand curve be price inelastic? Explain. 2 Points: ONE Point: Stating that it is price elastic (or No ). ONE Point: Explanation that MR is positive so TR rises if P is decreased

20 2007 Free Response (B) (c) Given the information in part (a), what happens to the demand curve for the typical firm in the long run? Explain. 2 Points: ONE Point: Stating that the demand curve for the typical firm would shift to the left. ONE Point: For the explanation that the entry of new firms reduces the market share (demand) of existing firms.

21 2007 Free Response (B) (d) Using a new correctly labeled graph, show the profit-maximizing output and price for the typical firm in the long run. ONE Point: Showing that long-run equilibrium occurs at the tangency of ATC and the demand curve at the profit-maximizing quantity.

22 2007 Free Response (B) (e) Does the typical firm produce an output level that minimizes its average total cost in the long run? ONE Point: No

23 2007 Free Response (B) (f) In long-run equilibrium, does the typical firm produce the allocatively efficient level of output? Explain. TWO Points: ONE Point: No ONE Point: Explanation that at the long-run equilibrium, P>MC.

2007 Thomson South-Western

2007 Thomson South-Western Monopolistic Competition Characteristics: Many sellers Product differentiation Free entry and exit In the long run, profits are driven to zero Firms have some control over price What does the costs graph

More information

CH 15: Monopoly. Lecture

CH 15: Monopoly. Lecture CH 15: Monopoly Lecture Characteristics of Monopolies A monopoly is a market structure in which one firm makes up the entire market Firm=Industry Characteristics of Monopolies The monopolist is a price

More information

Quiz #5 Week 04/12/2009 to 04/18/2009

Quiz #5 Week 04/12/2009 to 04/18/2009 Quiz #5 Week 04/12/2009 to 04/18/2009 You have 30 minutes to answer the following 17 multiple choice questions. Record your answers in the bubble sheet. Your grade in this quiz will count for 1% of your

More information

Unit 6 Perfect Competition and Monopoly - Practice Problems

Unit 6 Perfect Competition and Monopoly - Practice Problems Unit 6 Perfect Competition and Monopoly - Practice Problems Multiple Choice Identify the choice that best completes the statement or answers the question. 1. One characteristic of a perfectly competitive

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Competition CHAPTER16 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Describe and identify monopolistic competition. 2 Explain how

More information

Monopoly CHAPTER 15. Henry Demarest Lloyd. Monopoly is business at the end of its journey. Monopoly 15. McGraw-Hill/Irwin

Monopoly CHAPTER 15. Henry Demarest Lloyd. Monopoly is business at the end of its journey. Monopoly 15. McGraw-Hill/Irwin CHAPTER 15 Monopoly Monopoly is business at the end of its journey. Henry Demarest Lloyd McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. A Monopolistic Market A

More information

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37 CONTENTS Introduction to the Series iv 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply 17 3 Elasticities 37 4 Government Intervention in Markets 44 5 Market Failure 53 6 Costs of

More information

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and

More information

Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Economics 6 th edition 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall

More information

AP Microeconomics Review Session #3 Key Terms & Concepts

AP Microeconomics Review Session #3 Key Terms & Concepts The Firm, Profit, and the Costs of Production 1. Explicit vs. implicit costs 2. Short-run vs. long-run decisions 3. Fixed inputs vs. variable inputs 4. Short-run production measures: be able to calculate/graph

More information

The above Figure 1 shows the demand and cost curves facing a monopolist.

The above Figure 1 shows the demand and cost curves facing a monopolist. Practice 13&14 1) The key characteristics of a monopolistically competitive market structure include A) few sellers. B) sellers selling similar but differentiated products. C) high barriers to entry. D)

More information

ECON 200. Introduction to Microeconomics

ECON 200. Introduction to Microeconomics ECON 200. Introduction to Microeconomics Homework 5 Part II Name: [Multiple Choice] 1. A firm is a natural monopoly if it exhibits the following as its output increases: (d) a. decreasing marginal revenue

More information

Monopolistic Competition

Monopolistic Competition 16 Monopolistic Competition PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Monopolistic Competition Imperfect competition Between perfect competition and monopoly Oligopoly

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Competition 1. In a monopolistically competitive industry, profit-maximizing firms are price a. takers who produce a quantity where price is equal to marginal cost. b. takers who produce a

More information

Slides and Images, Worth Publishers Inc. 8-1

Slides and Images, Worth Publishers Inc. 8-1 Perfect Competition Michael J. Murray Slides and Images, Worth Publishers Inc. 8-1 Market Structure Analysis By observing a few industry characteristics, we can predict pricing and output behavior of the

More information

MICROECONOMICS - CLUTCH CH MONOPOLISTIC COMPETITION.

MICROECONOMICS - CLUTCH CH MONOPOLISTIC COMPETITION. !! www.clutchprep.com CONCEPT: CHARACTERISTICS OF MONOPOLISTIC COMPETITION A market is in monopolistic competition when: Nature of Good: The goods for sale are, but not identical - Products are said to

More information

ECON 102 Brown Final Exam Practice Exam Solutions

ECON 102 Brown Final Exam Practice Exam Solutions www.liontutors.com ECON 102 Brown Final Exam Practice Exam Solutions 1. B 2. C 3. C All products are identical (homogenous) in perfect competition so there is no such thing as brand preference. 4. C Breakeven

More information

MONOPOLISTIC COMPETITION

MONOPOLISTIC COMPETITION 14 MONOPOLISTIC COMPETITION The online shoe store shoebuy.com lists athletic shooes made by 56 different producers in 40 different categories and price between$25 and $850. It offers 1,404 different types

More information

Assessment Schedule 2016 Economics: Demonstrate understanding of the efficiency of different market structures using marginal analysis (91400)

Assessment Schedule 2016 Economics: Demonstrate understanding of the efficiency of different market structures using marginal analysis (91400) NCEA Level 3 Economics (91400) 2016 page 1 of 11 Assessment Schedule 2016 Economics: Demonstrate understanding of the efficiency of different market structures using marginal analysis (91400) Assessment

More information

Monopolistic Competition

Monopolistic Competition CHAPTER 16 Monopolistic Competition Goals in this chapter you will Examine market structures that lie between monopoly and competition Analyze competition among firms that sell differentiated products

More information

Unit 13 AP Economics - Practice

Unit 13 AP Economics - Practice DO NOT WRITE ON THIS TEST! Unit 13 AP Economics - Practice Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A natural monopoly exists whenever a single

More information

14 MONOPOLY OVERVIEW. 2. In the short run, a monopolist may make economic profit, economic loss, or a normal profit.

14 MONOPOLY OVERVIEW. 2. In the short run, a monopolist may make economic profit, economic loss, or a normal profit. 14 MONOPOLY OVERVIEW 1. Barriers to entry prevent firms from entering a market when there are incentives for them to enter. Barriers to entry include natural monopoly, high fixed cost, advertising, and

More information

Three Rules and Four Models

Three Rules and Four Models Three Rules and Four Models Three Rules: How to find the profit maximizing quantity: A firm will maximize its profit (or minimize its losses) by producing that output at which marginal revenue and marginal

More information

Three Rules and Four Models

Three Rules and Four Models Three Rules and Four Models Three Rules: How to find the profit maximizing quantity: A firm will maximize its profit (or minimize its losses) by producing that output at which marginal revenue and marginal

More information

Monopoly and How It Arises

Monopoly and How It Arises Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists In which there is one supplier that is protected from competition by a barrier preventing

More information

Pure Monopoly. The antithesis of Pure Competition!

Pure Monopoly. The antithesis of Pure Competition! Pure Monopoly The antithesis of Pure Competition! Characteristics of the Pure Monopoly Single seller a sole producer No close substitutes unique product Price maker control over price Blocked entry strong

More information

Use the following to answer question 4:

Use the following to answer question 4: Homework Chapter 11: Name: Due Date: Wednesday, December 4 at the beginning of class. Please mark your answers on a Scantron. It is late if your Scantron is not complete when I ask for it at 9:35. Get

More information

Practice Exam 3: S201 Walker Fall 2009

Practice Exam 3: S201 Walker Fall 2009 Practice Exam 3: S201 Walker Fall 2009 I. Multiple Choice (3 points each) 1. Which of the following statements about the short-run is false? A. The marginal product of labor may increase or decrease. B.

More information

Textbook Media Press. CH 12 Taylor: Principles of Economics 3e 1

Textbook Media Press. CH 12 Taylor: Principles of Economics 3e 1 CH 12 Taylor: Principles of Economics 3e 1 Monopolistic Competition and Differentiated Products Monopolistic competition refers to a market where many firms sell differentiated products. Differentiated

More information

CH 13. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

CH 13. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question. Class: Date: CH 13 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. One requirement for an industry to be perfectly competitive is that a. sellers and buyers

More information

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

More information

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

More information

Monopolistic Competition. Chapter 17

Monopolistic Competition. Chapter 17 Monopolistic Competition Chapter 17 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic

More information

MONOPOLY. Characteristics

MONOPOLY. Characteristics OBJECTIVES Explain how managers should set price and output when they have market power With monopoly power, the firm s demand curve is the market demand curve. A monopolist is the only seller of a product

More information

CH 14: Perfect Competition

CH 14: Perfect Competition CH 14: Perfect Competition Characteristics of Perfect Competition 1. Both buyers and sellers are price takers A price taker is a firm (or individual) who takes the price determined by market supply and

More information

Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics. Spring 2009 ECU Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

More information

Practice Exam 3: S201 Walker Fall with answers to MC

Practice Exam 3: S201 Walker Fall with answers to MC Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason

More information

Module 61 Introduction to Monopoly

Module 61 Introduction to Monopoly What you will learn in this Module: How a monopolist determines the profit-maximizing price and quantity How to determine whether a monopoly is earning a profit or a loss Module 61 Introduction to Monopoly

More information

Market Structure & Imperfect Competition

Market Structure & Imperfect Competition In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Market Structure

More information

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product.

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product. Perfect Competition In this section of work and the next one we derive the equilibrium positions of firms in order to determine whether or not it is profitable for a firm to produce and, if so, what quantities

More information

Practice Exam 3: S201 Walker Fall 2004

Practice Exam 3: S201 Walker Fall 2004 Practice Exam 3: S201 Walker Fall 2004 I. Multiple Choice (3 points each) 1. Which of the following statements about the short-run is false? A. The marginal product of labor may increase or decrease. B.

More information

Chapter 14 Oligopoly and Monopoly

Chapter 14 Oligopoly and Monopoly Economics 6 th edition 1 Chapter 14 Oligopoly and Monopoly Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall 2017 Oligopoly: a very different market structure

More information

Monopoly and How It Arises

Monopoly and How It Arises 13 MONOPOLY Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists If a good has a close substitute, even if it is produced by only one

More information

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources Market structures Why Monopolies Arise Market power Alters the relationship between a firm s costs and the selling price Charges a price that exceeds marginal cost A high price reduces the quantity purchased

More information

Teaching about Market Structures

Teaching about Market Structures Teaching about Market Structures Felix B. Kwan, Ph.D. Professor of Econ/Finance, Maryville University AP Econ Conference - FRB St. Louis June 17-19, 2015 Profits Foundational Concepts Some basic terms/concepts

More information

Introduction to Monopolistic Competition

Introduction to Monopolistic Competition Printed Page 659 Introduction to Monopolistic Competition How prices and profits are determined in monopolistic competition, both in the short run and in the long run How monopolistic competition can lead

More information

Principles of Microeconomics Module 5.1. Understanding Profit

Principles of Microeconomics Module 5.1. Understanding Profit Principles of Microeconomics Module 5.1 Understanding Profit 180 Production Choices of Firms All firms have one goal in mind: MAX PROFITS PROFITS = TOTAL REVENUE TOTAL COST Two ways to reach this goal:

More information

Perfect Competition CHAPTER14

Perfect Competition CHAPTER14 Perfect Competition CHAPTER14 MARKET TYPES The four market types are Perfect competition Monopoly Monopolistic competition Oligopoly MARKET TYPES Perfect Competition Perfect competition exists when Many

More information

Ch. 9 LECTURE NOTES 9-1

Ch. 9 LECTURE NOTES 9-1 Ch. 9 LECTURE NOTES I. Four market models will be addressed in Chapters 9-11; characteristics of the models are summarized in Table 9.1. A. Pure competition entails a large number of firms, standardized

More information

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount

More information

Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1

Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1 1) A monopoly is an industry with A) a single firm in which the entry of new firms is blocked. B) a small number of firms each large enough to impact the market price of its output. C) many firms each

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

More information

Econ 98 (CHIU) Midterm 1 Review: Part A Fall 2004

Econ 98 (CHIU) Midterm 1 Review: Part A Fall 2004 Disclaimer: The review may help you prepare for the exam. The review is not comprehensive and the selected topics may not be representative of the exam. In fact, we do not know what will be on the exam.

More information

MICROECONOMICS - CLUTCH CH PERFECT COMPETITION.

MICROECONOMICS - CLUTCH CH PERFECT COMPETITION. !! www.clutchprep.com CONCEPT: THE FOUR MARKET MODELS Market structure describes the environment in which a firm operates, determined by the Perfect Competition Monopolistic Competition Oligopoly Monopoly

More information

Course informa-on. Final exam. If you have a conflict, go to the Registrar s office for a form to bring to me

Course informa-on. Final exam. If you have a conflict, go to the Registrar s office for a form to bring to me Course informa-on Final exam If you have a conflict, go to the Registrar s office for a form to bring to me To do today: Finish compe--on and start monopoly What it is and does: single price and price

More information

CHAPTER NINE MONOPOLY

CHAPTER NINE MONOPOLY CHAPTER NINE MONOPOLY This chapter examines how a market controlled by a single producer behaves. What price will a monopolist charge for his output? How much will he produce? The basic characteristics

More information

Chapter 8 Competitors and Competition

Chapter 8 Competitors and Competition Chapter 8 Competitors and Competition Prof. Jepsen ECO 610 Lecture 4 December 6, 2012 John Wiley and Sons Competition If one firm s strategic choice adversely affects the performance of another, they are

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 FOUR MARKET STRUCTURES Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Imperfect Competition Every product is sold in a market that can be considered

More information

Top 10 Most Common Errors AP Economics 2011

Top 10 Most Common Errors AP Economics 2011 Top 10 Most Common Errors AP Economics 2011 Overview of Trouble Spots 11. Finding the Socially Optimal Quantity 10. Deadweight Loss from a Positive Externality 9. Allocative Efficiency 7. Price Elasticity

More information

Pure Competition in the Short Run

Pure Competition in the Short Run 08 Pure Competition in the Short Run McGraw-Hill/Irwin Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved. LO1 8-2 Four Market Models Pure competition Pure monopoly Monopolistic competition

More information

INTRODUCTION ECONOMIC PROFITS

INTRODUCTION ECONOMIC PROFITS INTRODUCTION This chapter addresses the following key questions: What are profits? What are the unique characteristics of competitive firms? How much output will a competitive firm produce? Chapter 7 THE

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

More information

Microeconomics. Use the Following Graph to Answer Question 3

Microeconomics. Use the Following Graph to Answer Question 3 More Tutorial at www.dumblittledoctor.com Microeconomics 1. To an economist, a good is scarce when: *a. the amount of the good available is less than the amount that people want when the good's price equals

More information

1. For a monopolist, present the standard diagram showing the following:

1. For a monopolist, present the standard diagram showing the following: ECON 202: Principle of Microeconomics Name: Fall 2006 Bellas Second Midterm You have two hours and thirty minutes to complete this exam. Answer all questions, explain your answers, label axes and curves

More information

ECON December 4, 2008 Exam 3

ECON December 4, 2008 Exam 3 Name Portion of ID# Multiple Choice: Identify the letter of the choice that best completes the statement or answers the question. 1. A fundamental source of monopoly market power arises from a. perfectly

More information

Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet. Class Day/Time

Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet. Class Day/Time 1 Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet Name Class Day/Time Questions of this homework are in the next few pages. Please find the answer of the questions and fill in the blanks

More information

Problem Set 4 Eco 112, Fall 2011 Chapters covered: Ch. 8 and Ch. 9 (up to slide 15 Price Discrimination) Due date: October 20, 2011

Problem Set 4 Eco 112, Fall 2011 Chapters covered: Ch. 8 and Ch. 9 (up to slide 15 Price Discrimination) Due date: October 20, 2011 Problem Set 4 Eco 112, Fall 2011 Chapters covered: Ch. 8 and Ch. 9 (up to slide 15 Price Discrimination) Due date: October 20, 2011 There are 30 multiple choice questions in this problem set. Answer these

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) Consumers have the ability to buy everything

More information

ECO 211 Microeconomics Yellow Pages ANSWERS. Unit 3

ECO 211 Microeconomics Yellow Pages ANSWERS. Unit 3 Spring 2013 ECO 211 Microeconomics Yellow Pages ANSWERS Unit 3 Mark Healy William Rainey Harper College E-Mail: mhealy@harpercollege.edu Office: J-262 Phone: 847-925-6352 1 Four Market Models CHARACTERISTIC

More information

Monopolistic Markets. Causes of Monopolies

Monopolistic Markets. Causes of Monopolies Monopolistic Markets Causes of Monopolies The causes of monopolization Monoplositic resources Only one firm owns a resource which is crucial for production (e.g. diamond monopol of DeBeers). Monopols created

More information

Section I (20 questions; 1 mark each)

Section I (20 questions; 1 mark each) Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important

More information

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

The competition in monopolistically competitive markets is most likely a result of having many sellers in the market. Chapter 16 Monopolistic Competition TRUE/FALSE 1. The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market. ANS: T 2. The "monopoly" in monopolistically

More information

2) A production method that relies on large quantities of labor and smaller quantities of capital equipment is referred to as a: 2)

2) A production method that relies on large quantities of labor and smaller quantities of capital equipment is referred to as a: 2) Micro: TA Session 4, Problem set MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The main difference between a short-run production function and

More information

Professor: Houman Mortazavi Econ 101 Fall Sample Questions

Professor: Houman Mortazavi Econ 101 Fall Sample Questions Sample Questions 1) Guy has an income (Y) of $70 with which he can purchase DVDs (D) at $15 each and haircuts (H) at $10 each. Which one of the following represents Guy's budget line? A) Y = 10QD - 20QH

More information

Perfect Competition CHAPTER 14. Alfred P. Sloan. There s no resting place for an enterprise in a competitive economy. Perfect Competition 14

Perfect Competition CHAPTER 14. Alfred P. Sloan. There s no resting place for an enterprise in a competitive economy. Perfect Competition 14 CHATER 14 erfect Competition There s no resting place for an enterprise in a competitive economy. Alfred. Sloan McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

More information

Joven Liew Jia Wen Industrial Economics I Notes. What is competition?

Joven Liew Jia Wen Industrial Economics I Notes. What is competition? Industrial Economics I Notes What is competition? Competition in markets is generally considered a good thing (welfare economics) Competition authorities look at whether change in market structure or firm

More information

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

More information

Microeconomics Unit 2 The Nature and Function of Product Markets

Microeconomics Unit 2 The Nature and Function of Product Markets Microeconomics Unit 2 The Nature and Function of Product Markets Characteristics: Large number of sellers Small market share No collusion which means? Producer s act independently Differentiated products

More information

FINALTERM EXAMINATION FALL 2006

FINALTERM EXAMINATION FALL 2006 FINALTERM EXAMINATION FALL 2006 QUESTION NO: 1 (MARKS: 1) - PLEASE CHOOSE ONE Compared to the equilibrium price and quantity sold in a competitive market, a monopolist Will charge a price and sell a quantity.

More information

Ecn Intermediate Microeconomic Theory University of California - Davis June 11, 2009 Instructor: John Parman. Final Exam

Ecn Intermediate Microeconomic Theory University of California - Davis June 11, 2009 Instructor: John Parman. Final Exam Ecn 100 - Intermediate Microeconomic Theory University of California - Davis June 11, 2009 Instructor: John Parman Final Exam You have until 8pm to complete the exam, be certain to use your time wisely.

More information

MICRO EXAM REVIEW SHEET

MICRO EXAM REVIEW SHEET MICRO EXAM REVIEW SHEET 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry 3. Natural Monopoly with Fair-Return

More information

Market Power at Work: Computer Market Revisited

Market Power at Work: Computer Market Revisited Monopolies Part II Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity. Nancy Pearcey Market Power at Work: Computer Market

More information

23 Perfect Competition

23 Perfect Competition 23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven

More information

AQA Economics A-level

AQA Economics A-level AQA Economics A-level Microeconomics Topic 5: Perfect Competition, Imperfectly Competitive Markets and Monopoly 5.6 Monopoly and monopoly power Notes Characteristics of monopoly: Monopolies can be characterised

More information

ECON 2100 (Summer 2016 Sections 10 & 11) Exam #3C

ECON 2100 (Summer 2016 Sections 10 & 11) Exam #3C ECON 21 (Summer 216 Sections 1 & 11) Exam #3C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. is a market structure in which there is one single seller of a unique

More information

ECON 2100 (Summer 2016 Sections 10 & 11) Exam #3D

ECON 2100 (Summer 2016 Sections 10 & 11) Exam #3D ECON 21 (Summer 216 Sections 1 & 11) Exam #3D Multiple Choice Questions: (3 points each) 1. I am taking of the exam. D. Version D 2. is a market structure in which there is one single seller of a unique

More information

AGENDA Mon 10/12. Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp Q #7

AGENDA Mon 10/12. Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp Q #7 AGENDA Mon 10/12 Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp 173-176 Q #7 QOD #21: Competitive Farming A purely competitive wheat farmer can sell

More information

a) I, II and III. b) I c) II and III only. d) I and III only. 2. Refer to the PPF diagram below. PPF

a) I, II and III. b) I c) II and III only. d) I and III only. 2. Refer to the PPF diagram below. PPF 1. Suppose that - at a given level of an economic activity - marginal social cost is greater than marginal social benefit. Which of the following statements is TRUE? I. Social surplus would be higher at

More information

Market structures Perfect competition

Market structures Perfect competition Market structures Perfect competition Market Structures Market structure refers to the number and size of buyers and sellers in the market for a good or service. A market can be defined as a group of firms

More information

AP Microeconomics Chapter 10 Outline

AP Microeconomics Chapter 10 Outline I. Learning Objectives In this chapter students should learn: A. How the long run differs from the short run in pure competition. B. Why profits encourage entry into a purely competitive industry and losses

More information

IB Economics Microeconomics Review Mr. Dachpian

IB Economics Microeconomics Review Mr. Dachpian IB Economics Microeconomics Review Microeconomics Review AP Microeconomics Chapter 1: Limits, Alternatives, & Choices IB Economics Chapter 2: The Market System and the Circular Flow Market Economies and

More information

Edexcel (B) Economics A-level

Edexcel (B) Economics A-level Edexcel (B) Economics A-level Theme 4: Making Markets Work 4.1 Competition and Market Power 4.1.1 Spectrum of competition Notes Characteristics of monopoly, oligopoly, imperfect and perfect competition

More information

FINAL EXAMINATION. Special Instructions: Date: DECEMBER 15, 2000 School Year: Course and No.: ECON1006EA Time: 1:30 PM- 3:30 PM

FINAL EXAMINATION. Special Instructions: Date: DECEMBER 15, 2000 School Year: Course and No.: ECON1006EA Time: 1:30 PM- 3:30 PM FINAL EXAMINATION Date: DECEMBER 15, 2000 School Year: 2000-2001 Course and No.: ECON1006EA Time: 1:30 PM- 3:30 PM Professor: SARLO, C Department: Arts & Science Number of Pages: 11 + cover Time Allowed:

More information

ECON 102 Brown Final Exam (New Material) Practice Exam Solutions

ECON 102 Brown Final Exam (New Material) Practice Exam Solutions www.liontutors.com ECON 102 Brown Final Exam (New Material) Practice Exam Solutions 1. B A very large percent of their earnings comes from economic rent 2. B Any funds left, after everyone who has a claim

More information

Economics. Monopolistic Perfect Competition. Monopolistic Competition. Monopolistic Competition 11/29/2013. The Big Picture. Perfect Competition

Economics. Monopolistic Perfect Competition. Monopolistic Competition. Monopolistic Competition 11/29/2013. The Big Picture. Perfect Competition 16 Modified by Joseph Tao-yi Wang Ron Cronovich The Big Picture Chapter 13: The cost of production Now, we will look at firm s revenue But revenue depends on market structure 1. Competitive market (chapter

More information

ECON 102 Wooten Final Exam Practice Exam Solutions

ECON 102 Wooten Final Exam Practice Exam Solutions www.liontutors.com ECON 102 Wooten Final Exam Practice Exam Solutions 1. A monopolist will increase price and decrease quantity to maximize profits when compared to perfect competition because a monopolist

More information

Lecture 11. Firms in competitive markets

Lecture 11. Firms in competitive markets Lecture 11 Firms in competitive markets By the end of this lecture, you should understand: what characteristics make a market competitive how competitive firms decide how much output to produce how competitive

More information

Unit 7. Firm behaviour and market structure: monopoly

Unit 7. Firm behaviour and market structure: monopoly Unit 7. Firm behaviour and market structure: monopoly Quiz 1. What of the following can be considered as the measure of a market power? A. ; B. ; C.. Answers A and B are both correct; E. All of the above

More information

REDEEMER S UNIVERSITY

REDEEMER S UNIVERSITY REDEEMER S UNIVERSITY Km 46/48 Lagos Ibadan Expressway, Redemption City, Ogun State COLLEGE OF MANAGEMENT SCIENCE DEPARTMENT OF ECONOMICS AND BUSINESS STUDIES COURSE CODE /TITLE ECO 202/Microeconomics

More information