MC: The Firms And Market structure (II)

Question 1

True or False: A Oligopoly demand curve slopes upward, from left to right?

Answer 1

False.
Slopes downward like Monopolistic Competition.

Question 2

What is the kinked demand curve in oligopoly pricing models?

Answer 2

Competitors match price decreases; do not match price increases.

This model reflects how firms in an oligopoly react to price changes to maintain market stability.

Question 3

Describe the Cournot model in oligopoly pricing.

Answer 3

Same product, identical costs; simultaneous decisions, firms split the market equally.

This model assumes firms make decisions at the same time without collusion.

Question 4

What characterizes the Stackelberg model in oligopoly?

Answer 4

Decisions are sequential; ‘leader’ firm captures more of the market.

In this model, one firm moves first and the others follow, leading to a leader-follower dynamic.

Question 5

Define Nash equilibrium in the context of oligopoly.

Answer 5

Choices of all firms are such that no other choice makes any firm better off (increases profits or decreases losses).

This concept is critical in understanding strategic interactions where firms are interdependent.

Question 6

When regulated, a monopoly earns what type of profit?
A. Economic
B. Normal

Answer 6

B.Normal

Question 7

What is the N-firm concentration ratio?

Answer 7

Sum of the percentage market shares of N largest firms in an industry

This measure helps to assess the level of concentration in a market.

Question 8

What is an advantage of the N-firm concentration ratio?

Answer 8

Simple to calculate

It provides a quick overview of market structure.

Question 9

What are the limitations of the N-firm concentration ratio?

Answer 9

• Ignores barriers to entry
• Largely unaffected by mergers

These limitations can lead to an incomplete understanding of market dynamics.

Question 10

What does the Herfindahl-Hirschman Index (HHI) measure?

Answer 10

Sum of squared market shares of N largest firms in a market

HHI is a more nuanced measure of market concentration.

Question 11

What is an advantage of the Herfindahl-Hirschman Index (HHI)?

Answer 11

More sensitive to mergers than N-firm ratio

This sensitivity makes it a preferred choice among regulators.

Question 12

What is a limitation of the Herfindahl-Hirschman Index (HHI)?

Answer 12

• Ignores barriers to entry
• Ignores elasticity of demand

These factors can significantly influence market behavior.

Question 13

True or False: The LR & SR model for Pure Monopoly aren’t the same.

Answer 13

False.
They are same.

Question 14

Monopolistic Competition’s SR demand and pricing model is similar to a _______ market

Answer 14

Pure Monopoly