Chapter 6 - Competition

Question 1

What is market structure?

Answer 1

The number and relative size of firms in an industry

Question 2

What are the 5 types of market structure? Of the 5, which 3 are considered imperfect competition and are the most common?

Answer 2

1.Monopoly
2. Duopoly
3. Oligopoly
4. Monopolistic competition
5. Perfect competition

Duopoly, oligopoly, monopolistic competition

Question 3

What is a monopoly?

Answer 3

One company produces the entire market supply of a particular good or service. They are the price setter, have no direct competitors, and have complete market power

Question 4

What does it mean to have complete market power??

Answer 4

Have the ability to alter the market price of a good or service

Question 5

What is monopolistic competition?

Answer 5

Many firms essentially provide the same product but each enjoys significant brand loyalty. ex- makeup brand that includes a darker tone line

Question 6

What are the 4 conditions for perfect competition?

Answer 6

1. Homogeneous product
2. Many small firms
3. Free entry and exit
4. All firms face same costs

Question 7

In a perfectly competitive firm, no one has ___________

Answer 7

market power

Question 8

Explain the graph of the market demand curve

Answer 8

Y axis: Price
X axis: Quantity

Question 9

What will the market demand curve look like in a perfectly competitive firm?

Answer 9

Straight horizontal line

Question 10

Total profits depend on both _____&______. not just revenue

Answer 10

revenue and cost increases (as output expands)

Question 11

To maximize profit, firm should produce an additional unit of output only if…..?

Answer 11

it brings in revenue that is greater than the cost of producing it

Question 12

Why does cost not increase at a constant rate?

Answer 12

1. Variable costs
2. Marginal costs increase

Question 13

To determine if they should produce more, what 2 things does a firm compare??

Answer 13

Price and marginal costs

Question 14

if price is greater than marginal costs…..

Answer 14

increase output rate

Question 15

If price = marginal costs…..

Answer 15

keep rate of output. profits are maximized at this point

Question 16

if price is less than marginal costs…..

Answer 16

decrease output rate

Question 17

What is market supply?

Answer 17

Total quantity of a good that sellers are WILLING AND ABLE to sell at alternative prices in a given time period

Question 18

Market supply curve is the sum of…?

Answer 18

sum of the marginal cost curve of all the firms

Question 19

What determines the supply decisions of a firm?

Answer 19

Marginal costs

Question 20

Anything that alters marginal costs will_____

Answer 20

change supply behavior

Question 21

Is the number of firms in a competitive industry fixed?

Answer 21

NO

Question 22

What is a driving force affecting market equilibrium?

Answer 22

Industry entry and exit

Question 23

When firms see profit and decide to ENTER an industry, what happens to the market supply curve and the price?

Answer 23

Supply curve shifts to the right and price decreases. Industry output increases and price falls

Question 24

Market supply curve is a ____ sloping curve

Answer 24

upwards

Question 25

What is the force driving down market prices?

Answer 25

entry

Question 26

As firms enter a competitive industry, price falls until ________

Answer 26

there are no economic profitd

Question 27

When do firms leave an industry?

Answer 27

When profit opportunities look better elsewhere and price falls below average cost

Question 28

As firms exit, what happens to price and market supply curve?

Answer 28

Market supply curve shifts to the left as price increases and quantity produced decreases

Question 29

As long as it's easy for existing producers to expand production or for new firms to enter, economic profits will,,,,?

Answer 29

NOT LAST LONG