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AP Economics > Pure Monopoly, Monopolistic Competition, Oligopoly Test > Flashcards

Pure Monopoly, Monopolistic Competition, Oligopoly Test Flashcards

1
Q

What are the types of monopolies and examples of them?

A
  • government owned monopolies: TVA power, municipal water
  • regulated monopolies: gas, electric, water, cable, phone
  • private unregulated monopolies: De Beers Diamond Syndicate, Pro Sports Leagues
  • local monopolies: airline, bank, movie, bookstore
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2
Q

What are the barriers to entry for a pure monopoly?

A
  1. Economies of scale
  2. Public Utilities: natural monopolies
  3. Legal barriers: patents and licenses
  4. Ownership of raw materials
  5. Pricing and other strategic barriers
    • product disparagement
    • pressure on resource supplier
    • aggressive price cutting
    • dumping: flooding the market
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3
Q

What is a cooperative?

A

Group of individuals working together

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4
Q

What is an unregulated monopoly also called?

A

Non-discriminatory

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5
Q

What are the assumptions in an unregulated monopoly?

A
  • monopoly status secured by patents, economies of scale, or resource ownership
  • firm is not regulated
  • the firm is a single price monopolist charging the same for all units of output
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6
Q

Why is the demand curve of an unregulated monopoly sloping downward?

A

To sell more of his goods, the monopolist must lower his price

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7
Q

What price does the monopolist charge?

A

The highest price he can

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8
Q

What portion of the demand curve must the monopolist operate in?

A

The elastic portion

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9
Q

Why must the monopolist operate in the elastic portion of the demand curve?

A

Because in the inelastic region, it must lower the price

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10
Q

Why is the imperfectly elastic firm’s MR curve below their demand curve?

A

Because monopolists must lower the prices on all units to increase sales

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11
Q

Where is the elastic portion of the demand graph?

A

Anything left of when MR=0

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12
Q

For an unregulated monopoly how do you find the quantity to produce?

A

Find MR=MC

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13
Q

In an unregulated monopoly’s demand curve how do you find the price?

A

Find the point on the demand curve that corresponds with quantity being produced

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14
Q

How do you find the profit/loss for an unregulated monopoly curve?

A

Find the ATC curve and determine whether its above or below the price

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15
Q

Why is there no supply curve for an unregulated monopoly?

A

They are the supply

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16
Q

A pure monopolist will

A

Charge a higher price and sell a lower quantity

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17
Q

To know that a graph is a graph of a monopoly look for

A

The MR curve below the demand curve

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18
Q

Pure monopoly

A

P > min ATC
P > MC

-neither allocative nor productive efficiency

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19
Q

X- inefficiency

A

-inefficiencies or poor management by firm
-ex:
• easier work life
• giving jobs to incompetent friends/ family
• risk avoidance

20
Q

Rent seeking expenditures

A
  • adds nothing to output
  • increases costs
  • used to maintain monopoly
21
Q

In a discriminatory monopoly what three conditions are realized?

A
  • seller must be a monopolist or at least have some degree of monopoly power (ability to control output and price)
  • seller must be able to segment the market so that each has a different willingness and ability to pay for the product (based on different elasticities of demand)
  • original purchaser can’t resell the product or service
22
Q

Single price monopolist

A

Produces output where MR=MC at Q and sells that Q at P.

23
Q

Perfectly Discriminating Monopolist

A

D=MR because it doesn’t cut price on preceding units to sell more output. The profitable output is Q2, which is greater than the single monopolist

24
Q

Perfectly discriminating monopoly

A

Collects consumer surplus

25
Q

Monopoly price, fair return price, and socially optimum price

A
  • Monopoly price is where the monopolist wants to produce
  • socially optimum price (P=MC) is where we want the monopolist to produce
  • fair return price is the compromise between the two
26
Q

T/F “A monopolist always charges the highest possible price?”

A

False, they charge the price that will yield the highest total profit (MR=MC)

27
Q

How does a monopoly affect consumer surplus?

A

A monopoly decreases consumer surplus. Surplus is transferred from consumer to producer

28
Q

What happens to consumer surplus of a firm successfully price discriminates?

A

Decreases

29
Q

What happens to the firm’s profits of it successfully price discriminates?

A

Increases

30
Q

What are characteristics of monopolies?

A
  • single seller: industry and firm synonymous
  • no close subs: unique product; no reasonable alternative
  • price maker: firm exercises control over price
  • some degree of non price competition: generally advertising
  • blocked entry: barriers to entry created by monopolist or government
31
Q

What is the market situation in a monopolistic competition?

A

A relatively large number of small producers are offering similar but not identical products

32
Q

Characteristics of a monopolistic competition?

A
  • each firm has small percentage of total market
  • collusion is not likely
  • no mutual interdependence
  • easy entry and exit
  • non price competition
33
Q

What are the monopolistic qualities in a monopolistic competition?

A
  • control over price
  • D > MR
  • advertising
  • not efficient
34
Q

What are the perfect competition qualities in a monopolistic competition?

A
  • large number of firms
  • easy exit/entry
  • no long term profit for industry
35
Q

What does the demand curve faced by a monopolistic competition seller look like?

A

Highly but not perfectly elastic

36
Q

In monopolistic competition is there any profit?

A

No there’s just normal profit

37
Q

Is monopolistic competition efficient?

A

No it’s neither allocative or productive efficiency since P doesn’t equal MC or P doesn’t equal ATC

38
Q

What are the goals of advertising?

A
  • to increase market share

- to create customer loyalty

39
Q

In an oligopoly how many firms are there?

A

Relatively small number (2-4)

40
Q

What are the characteristics of an oligopoly?

A

-few large producers (2-4)
-homogeneous or differentiated products
-control over price with some mutual interdependence
-entry barriers
•economies of scale
•the level of demand will dictate how
many firms are needed
•ownership of patents will be a
barrier
•ownership or control of raw
materials
•urge to merge for greater profit

41
Q

What are the measures of industry concentration in a monopolistic competition?

A

-concentration ratio: percentage of total industry sales accounted for by the four largest firms in the industry
• when 4 firms control 40% or more of
the market, the industry is
considered oligopolistic
-herfindahl index: helps to show dominance of major firms
•sum of squared % market share of
all firms in the industry
•greater weight given to larger firms
•larger the index number, the greater
the market power within an industry
• 100^2 = pure monopoly

42
Q

What does game theory examine?

A

Oligopolistic behavior as a series of strategic moves and counter moves by rival firms. Analyzes behavior of decision makers, whose choices affect one another.

43
Q

What does the game theory reveal that oligopolies show?

A
  • mutual interdependence
  • expectation of reaction: match price decrease but ignore a price increase
  • collusive tendencies
  • unpredictability of reaction
44
Q

What is the economic efficiency of an oligopoly?

A

Acts like a monopoly; no productive or allocative efficiency; worse than monopoly because gov discourages monopoly development

45
Q

What are the obstacles to collusion?

A
  1. Demand and cost differences
  2. # of firms
  3. Cheating
  4. Potential entry
  5. Anti- trust laws
  6. Recession

AP Economics (19 decks)

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