Monopoly, Oligopoly and Monopolistic Competition

Question 1

Explain what a producer surplus is

Answer 1

-Difference between Pe and price that entr. want to receive

Question 2

Explain what a total surplus is

Answer 2

-takes into acc., purchase at equi. price
-both parties sell and buy prod.
-at higher/ lower price than willing
-supp. price> min. price will. 2 produce
-consum price<max. price 2 buy

-Total surplus= cons. + produ. surplus

Question 3

TRUE or FALSE: there is a metric to determine total welfare

Answer 3

-TRUE, total surplus
-Total surplus= cons. surplus + produ. surplus

Question 4

TRUE or FALSE: Ceteris Paribus means that the market is still and predictable

Answer 4

FALSE: means that if noth. changes in the circ. equi. remains

Question 5

Explain what a consumer surplus is

Answer 5

Difference between Pe and price that consumers are will. to pay

Question 6

List the two main umbrella terms for why equilbirum changes

Answer 6

-Changing demand
-Changing Supply

Question 7

List reasons for changing demand

Answer 7

• Pref. change
  -No. of cons. changes
  -Inc. distribu. changes
  -Price of another good changes (subs. or compl. goods)
  -which can be comp.

Question 8

List reasons for changing supply

Answer 8

-No. of suppliers chang. (unable to supp. as much)
-Price of so. produ. factors changes
-Tech. changes
-Change in wealth. /seas.

Question 9

TRUE OR FALSE: Supply is revenue curve

Answer 9

-FALSE, supply is MC curve

Question 10

Describe a demand curve, where demand is reducing

Answer 10

-price and quant. reduce
-so the curve shifts to the left

Question 11

Describe a supply curve, where supply has increased

Answer 11

-price reduces, quantity increase (more supply)
-curve move 2 right

Question 12

‘Market equilibirum is economically efficient.’ Explain this phrase

Answer 12

-Qunatity demanded (supplied) is max. at price supp. willing to pay
-Price that the customer willing to pay, with the highest demand
-we all win

Question 13

TRUE or FALSE: Market quilibrium is efficient but not pareto efficient

Answer 13

-FALSE: it is pareto efficient

Question 14

‘Market equilibrium is pareto efficient.” Explain this phrase-

Answer 14

• amount prod. wanna supp. at certain price
  -is same amount. buy. wanna b uy at certain price
  -Total surplus is max.
  -Ask Leaonie
  If less is produced than, not all consumers get what they want → missed opportunities.

If more is produced, producers can’t sell everything at a good price → wasted resources.

Question 15

Explain what a monopoly is

Answer 15

-one supplier
-price setter

Question 16

List reasons for a monopoly

Answer 16

1. Tech. Monop.
2. Leg. Monop.
3. Nat. Monop.

Question 17

Explain what a technological monopoly is

Answer 17

• one firm contr.
  -manuf. methods
  OR
  -has exc. rights over the technology used to manufacture it

Question 18

Explain what a natural monopoly is

Answer 18

-without abus. practic.
-occurs due to scale adv. (more efficient 2 have one)

Question 19

TRUE or FALSE: ATC is lowest when production is minimal in monopolies

Answer 19

-FALSE: ATC is lowest when production reaches max. market size
(spread over, think fixed costs)

Question 20

Explain the advantages of a natural monopoly

Answer 20

-Low(er) produc. costs vs. perf. compet.
-scale advantage effect

Question 21

TRUE or FALSE: the scale advantage effect is when ATC lowered across big produc.

Answer 21

TRUE

Question 22

TRUE or FALSE: ATC is Lowest when Production reaches maximum, in monopoly

Answer 22

• TRUE

Question 23

Explain a disadvantage of (natural) monopolies

Answer 23

-low produ. cost (scale effect)

Question 24

TRUE or FALSE: Perfect competition is an efficient substitute for natural monopolies

Answer 24

-FALSE

Question 25

Explain how one can counter the high prices of nat. monop.

Answer 25

-Regulation- Tariffs

Question 26

Explain why marginal revenue decreases in a monopoly8

Answer 26

-Monopolist is Price Sett. -but cannot set price at whtv. (hv 2 adj. 4 demand) -reduce price--> more demand -rev. of each unit decreases (MR decreases)

Question 27

TRUE or FALSE: Monopoly causes more welfare costs for monopolists

Answer 27

-TRUE -2 maintain their dominant position

Question 28

Explain what X-inefficiency is

Answer 28

- relat. weak incentive 2 control costs

Question 29

Explain what dynamic inefficiency is

Answer 29

- relat. weak incentive 2 innovate

Question 30

Explain the economic basis of comp. law

Answer 30

- W: higher welfare - less comp. = more deadweight loss -red. this -higher welfare!!!! -D: distortion of competition -prevent dist. of competition

Question 31

Explain what oligopoly is

Answer 31

- mark. where there are few suppliers

Question 32

List types of oligopoly

Answer 32

-Homogenous oligopoly -Heterogenous Oligopoly

Question 33

Explain what a homogenous oligopoly is

Answer 33

- Few supp. -IDENT. products

Question 34

Explain what a heterogenous oligopoly is

Answer 34

-Few supp. -COMP. products (non-identical, differentiated)

Question 35

Explain the statement "there is no one unequivocal oligopoly theory"

Answer 35

- No, sing. theory on how oligopolies behave -CARTEL: (a few supp. coord. btwn each other 2 fix pric. or quantities -earning excess profits -Perf. Comp.

Question 36

TRUE or FALSE: Oligopoly in a perfect- competiton situation faces the collective action problem

Answer 36

-FALSE/ cARTEL PRONLE

Question 37

Explain the collective action problem

Answer 37

-HARDER to ENFORCE. in Large group -applies to cartels

Question 38

Explain why cartels are economically unstable

Answer 38

Free Riding: One company might secretly produce more than agreed, to make more money. Collective-Action Problem: It’s hard to keep everyone in line, especially in big groups. Cartels work better when only a few companies are involved — easier to watch and control. Entry of New Competitors: High cartel prices mean big profits. That attracts new companies who want a share. New firms increase supply, which lowers the price and ruins the cartel’s plan

Question 39

List types of oligopoly behav iours

Answer 39

1. Product differentiation (coca light vs. coca zero + eneco vs. Frivius) 2. Firms coordinating (e.g: mergers) 3. Cartel

Question 40

Explain how monopolies naturally invoke the entry of new firms

Answer 40

-EXCESS PROF. -more initial excess profit -entry by new firms

Question 41

Explain the graph on monopolies once (excess) profits attract newcomers

Answer 41

- take away demand from exity firm -demad curve shifts to less -smal

Question 42

How does a monopolist maximise profit?

Answer 42

-Find point where MC=MR -then increase vertically till intersect demand curve

Question 43

Explain why the MR curve is downward sloping in Monopolies?

Answer 43

-Because the Monopolist can set the price