chapter 7- monopoly and monopolistic competition

Question 1

what is a monopoly ?

Answer 1

is characterized by a single firm
dominating the entire market.
has the market power to set the price of its product

Question 2

main characuertsics of a pure monopoly

Answer 2

There is only one firm in the market who supplies the
entire market.
2. The firm’s product is unique and has no close substitutes.
3. There are high barriers to entry that prevent other firms
from entering the market.

Question 3

most common barriers to entry

Answer 3

legal restrictions, economies of scale

Question 4

the monopolist faces which type of demand curve

Answer 4

downward sloping–> has the power to set the price above MC

Question 5

what is the Lerner index

Answer 5

measures a firm’s degree of market power.
The larger the Lerner Index, the more market power the firm ha

Question 6

what is market power

Answer 6

s the ability of a firm to set the price above its marginal
cost and earn a positive profit

Question 7

As n becomes more elastic

Answer 7

the Lerner index and the price that the
firm is able to set will be smaller

Question 8

what is monopolistic competition

Answer 8

is a market structure that
combines features of both perfect competition and
monopoly
firms have some control over
the price of their products, but they also face
competition from other firms producing similar
products

Question 9

what are the main characiertsics of mopolostic competition

Answer 9

1. Many small firms operate in the market, with low barriers to entry or exit.
2. Products sold in the market are differentiated from
   one another.

Question 10

Graphically, the long-run monopolistic equilibrium
occurs

Answer 10

where the slope of the firm’s ATC curve is
equal to the slope of the long-run demand curve

Question 11

If firms earn positive total profits (πSR > 0), (long run eq)

Answer 11

new firms enter the
market, increasing competition and the number of firms
As a result, the demand for existing firms decreases, reducing their
market power.
* This causes the demand curve for each firm shifts to the left

Question 12

if firms earn negative total profits

Answer 12

some firms exit the
market, leading to a decrease in the number of firms and increase in
demand for existing firms.
* This, in turn, increases demand for existing firms, giving them
greater market power.
* Consequently, the demand curve for each firm shifts to the right.

Question 13

what is a monopsony

Answer 13

is a market structure characterized by a
single buyer with significant market power, known
as a monopsonist, and many seller
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