Chapter 10

Question 1

four-firm concentration ratio

Answer 1

a measure of market power that is calculated as the percentage of the value of sales accounted for by the four largest firms in the industry

Question 2

Herfindahl-Hirschman Index

Answer 2

a measure of market power that is calculated as the square of the market share of each firm (as a percentage) summed over the largest 50 firms

Question 3

marginal revenue

Answer 3

the change in total revenue that results from a one-unit increase in the quantity sold; calculated as the change in total revenue divided by the change in quantity sold

Question 4

monopolistic competition

Answer 4

a market structure in which a large number of firms make similar but slightly different products and compete on product quality, price, and marketing, and firms are free to enter or exit the market

Question 5

monopoly

Answer 5

a market structure in which there is one firm, which produces a good that has no close substitutes and in which the firm is protected from competition by a barrier preventing the entry of new firms

Question 6

oligopoly

Answer 6

a market structure in which a small number of firms compete

Question 7

perfect competition

Answer 7

a market in which there are many firms each selling an identical product; there are many buyers; there are no restrictions on entry into the industry; firms in the industry have no advantage over potential new entrants; and firms and buyers are well informed about the price of each firm’s product

Question 8

price taker

Answer 8

a firm that cannot influence the price of the good or service it produces

Question 9

product differentiation

Answer 9

making a product slightly different from the product of a competing firm

Question 10

short-run market supply curve

Answer 10

a curve that shows the quantity supplied in a market at each price when each firm’s plant and the number of firms remain the same

Question 11

shutdown point

Answer 11

the price and quantity at which the firm is indifferent between producing the profit-maximizing output and shutting down temporarily; occurs at the price and the quantity at which average variable cost is a minimum

Question 12

total revenue

Answer 12

the value of a firm’s sales; calculated as the price of the good multiplied by the quantity sold