The Firm and Market Structures

Question 1

Market structure can be broken down into four distinct categories: (4)

Answer 1

perfect competition, monopolistic competition, oligopoly, and monopoly

Question 2

Price elasticity of demand

Answer 2

εP = –(% change in QD) ÷ (% change in P)

Question 3

Consumer surplus is the area ____________

Answer 3

beneath

the demand curve and above the price paid

Question 4

The most distinctive factor in monopolistic competition is _____________.

Answer 4

product differentiation

Question 5

In the _________, each firm determines its profit-maximizing production level by assuming that the other firms’ output will not change.

Answer 5

Cournot assumption

Question 6

The Nash equilibrium is present when _______.

Answer 6

two or more participants
in a non- cooperative game have no incentive to deviate from their respective equilibrium strategies after they have considered and anticipated their opponent’s rational
choices or strategies.

Question 7

The important
difference between the Cournot model and the Stackelberg model is that Cournot
assumes that in a duopoly market, decision making is simultaneous, while Stackelberg
assumes that _________.

Answer 7

decisions are made sequentially.

Question 8

A monopolist charges each customer the highest price the

customer is willing to pay.

Answer 8

First- degree price

discrimination

Question 9

The monopolist offers a menu of quantity based pricing options designed to induce customers to self- select based on how
highly they value the product.

Answer 9

Second- degree price discrimination

Question 10

The Herfindahl–Hirschman index (HHI) calculation

Answer 10

Sum of market shares squared

Question 11

Profits are maximized when MR = MC. For a monopoly, MR =

Answer 11

P[1 – 1/Ep]