Microeconomics Chapter 10

question

Does monopolistic competition have only one or many firms?

Homogenous or differentiated products?

None, few, or many barriers to entry?

Control over price?

Long-run economic profit?

answer

Many

Differentiated

No barriers

Some control

No LREP

question

What is the main difference between monopolistic competition and perfect competition?

answer

Product differentiation

question

What are the 2 types of advertising? Describe them.

answer

Informational:
Informs consumers about products

Persuasive:
Influences consumer's emotions

question

What does the demand curve of a monopolistic competition look like? Is it elastic or inelastic? Why?

answer

Downward-sloping line

More elastic than a monopoly because of competition

question

How does a monopolistic competition maximize profits?

answer

MR = MC

(Same as a perfectly competitive market)

question

If a monopolistically competitive firm is earning economic profit in the short run, firms will _____ the industry.

Due to this, demand _____ which shifts the demand curve to the _____.

In the long run, sellers earn _____ profit, in which price is equal to _____.

answer

Enter

Decreases
Left

Normal
Average total cost

question

In the long run of a monopolistic competition, firms earn _____ profit, NOT _____ profit, in which price equals _____.

answer

Normal
Economic
Average total cost

question

Does an oligopoly have few or many firms?

What kind of decision making is made?

Homogenous or differentiated products?

None, few, or many barriers to entry?

Control over price?

Long-run economic profit?

answer

Few firms

Interdependent

EITHER homogenous or differentiated products

Substantial barriers

Shared market power (considerable control)

Potential for LREP

question

Oligopolies tend to have huge _____ costs, creating a prohibitive barrier to entry.

answer

Fixed

question

A(n) _____ is an agreement between firms in an industry to formally collude on price and output, then agree on the distribution of production.

answer

Cartel

question

Cartels reduce overall _____ to increase _____ and _____.

answer

Supply
Price
Profit

question

If a member of a cartel cheats, it _____ the price of the good, causing an overall _____ in profit for the industry, but the cheating firm _____ in profit.

answer

Reduces

Loss

Gains

question

Cartels are more stable when...

They have _____ members with similar goals.

They are maintained with _____.

There is less or more product differentiation?

Each firm has a similar _____.

Many or few barriers to entry?

answer

Fewer

Legal provisions

Less differentiation

Cost structure

Significant barriers

question

The kinked demand curve model of oligopolies describes...

If a firm raises its prices, competitors will or will not follow? Will this increase or decrease quantity demanded?

If a firm lowers its prices, competitors will or will not follow? Will this increase or decrease quantity demanded?

answer

Will not follow
Decreases demand

Will follow
Increases demand

question

_____ is the study of how individuals and firms make their strategic decisions to achieve goals when other players/factors can influence the outcome.

answer

Game theory

question

What are the 5 components of a game?

answer

1) Players
2) Information
3) Strategies
4) Outcomes
5) Payoffs

question

What are the 2 basic game theory assumptions?

answer

1) The objectives of the players are well known

2) Players make rational decisions and have rational strategies

question

Describe a player's moves in sequential-move games.

Describe a player's moves in simultaneous-move games.

answer

One at a time

Actions occur at the same time (sports)

question

A game table is used in a _____-move game.

A best-response analysis is used in which every player selects the best response to every possible move by the other player.

An outcome that is selected as a best response by all players is a _____.

answer

Simultaneous

Nash equilibrium

question

Once Nash equilibrium is reached, what happens?

Nash equilibrium maximizes the _____ given all possible scenarios.

answer

No individual player can do better by changing their mind

Expected payoff

question

A _____ occurs when a player chooses the same action no matter the decision of the other player.

When all players have a dominant strategy, how is Nash equilibrium affected?

answer

Dominant strategy

There is only 1 Nash equilibrium

question

How many Nash equilibria are there in the following scenario?

You are meeting a peer at Starbucks to study but did not exchange numbers and did not decide on 1 of 2 Starbucks locations.

answer

1) Successful meetup at Starbucks A

2) Successful meetup at Starbucks B

question

Prisoner's dilemma occurs in _____ games.

The Nash equilibrium outcome is _____ (better/worse) than another outcome that could be achieve with _____.

answer

Noncooperative

Worse
Cooperation

question

What is one benefit of a prisoner's dilemma?

answer

It can lead to very low prices for consumers

question

_____ strategies are actions that are dependent on the other players' past decisions.

answer

Trigger

1 of 25

question

Does monopolistic competition have only one or many firms?

Homogenous or differentiated products?

None, few, or many barriers to entry?

Control over price?

Long-run economic profit?

answer

Many

Differentiated

No barriers

Some control

No LREP

question

What is the main difference between monopolistic competition and perfect competition?

answer

Product differentiation

question

What are the 2 types of advertising? Describe them.

answer

Informational:
Informs consumers about products

Persuasive:
Influences consumer's emotions

question

What does the demand curve of a monopolistic competition look like? Is it elastic or inelastic? Why?

answer

Downward-sloping line

More elastic than a monopoly because of competition

question

How does a monopolistic competition maximize profits?

answer

MR = MC

(Same as a perfectly competitive market)

question

answer

Enter

Decreases
Left

Normal
Average total cost

question

In the long run of a monopolistic competition, firms earn _____ profit, NOT _____ profit, in which price equals _____.

answer

Normal
Economic
Average total cost

question

answer

Few firms

Interdependent

EITHER homogenous or differentiated products

Substantial barriers

Shared market power (considerable control)

Potential for LREP

question

Oligopolies tend to have huge _____ costs, creating a prohibitive barrier to entry.

answer

Fixed

question

A(n) _____ is an agreement between firms in an industry to formally collude on price and output, then agree on the distribution of production.

answer

Cartel

question

Cartels reduce overall _____ to increase _____ and _____.

answer

Supply
Price
Profit

question

If a member of a cartel cheats, it _____ the price of the good, causing an overall _____ in profit for the industry, but the cheating firm _____ in profit.

answer

Reduces

Loss

Gains

question

answer

Fewer

Legal provisions

Less differentiation

Cost structure

Significant barriers

question

answer

Will not follow
Decreases demand

Will follow
Increases demand

question

_____ is the study of how individuals and firms make their strategic decisions to achieve goals when other players/factors can influence the outcome.

answer

Game theory

question

What are the 5 components of a game?

answer

1) Players
2) Information
3) Strategies
4) Outcomes
5) Payoffs

question

What are the 2 basic game theory assumptions?

answer

1) The objectives of the players are well known

2) Players make rational decisions and have rational strategies

question

Describe a player's moves in sequential-move games.

Describe a player's moves in simultaneous-move games.

answer

One at a time

Actions occur at the same time (sports)

question

answer

Simultaneous

Nash equilibrium

question

Once Nash equilibrium is reached, what happens?

Nash equilibrium maximizes the _____ given all possible scenarios.

answer

No individual player can do better by changing their mind

Expected payoff

question

A _____ occurs when a player chooses the same action no matter the decision of the other player.

When all players have a dominant strategy, how is Nash equilibrium affected?

answer

Dominant strategy

There is only 1 Nash equilibrium

question

How many Nash equilibria are there in the following scenario?

You are meeting a peer at Starbucks to study but did not exchange numbers and did not decide on 1 of 2 Starbucks locations.

answer

1) Successful meetup at Starbucks A

2) Successful meetup at Starbucks B

question

Prisoner's dilemma occurs in _____ games.

The Nash equilibrium outcome is _____ (better/worse) than another outcome that could be achieve with _____.

answer

Noncooperative

Worse
Cooperation

question

What is one benefit of a prisoner's dilemma?

answer

It can lead to very low prices for consumers

question

_____ strategies are actions that are dependent on the other players' past decisions.

answer

Trigger

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Microeconomics Chapter 10

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