Finals: Monopolistic and Oligopoly

• Monopolistic Competition Based on Three Assumptions

  1. Many sellers and buyers
  2. produces slightly differentiated products
  3. Easy entry and exit
• True or false: P>MR, its marginal revenue curve lies below the demand curve, so the basis will be the demand curve

  true
• true or false: The monopolistic competitor produces quantity of output at which MR = MC. It charges the lowest price per unit of this output.

  false, highest
• this means that markets use scarce resources to make the products and provide the services that society demands and desires.

  Allocative efficiency
• this is an organization of firms that reduces output and increases price in an effort to increase joint profits

  Cartel
• In this theory of oligopoly oligopolistic firms act in a manner consistent with having only one firm in the industry.

  Cartel Theory
• A theory predicts that an oligopolistic firm will experience price stickiness or rigidity.

  Kinked Demand Curve Theory
• A theory assumes that if a single firm lowers price, other firms will do likewise, but if a single firm raises price, other firms will not follow suit

  Kinked Demand Curve Theory
• This assumes that the dominant firm in the industry determines the price and all other firms take this price as given

  Price Leadership Theory
• This assumes that the firm in an oligopolistic industry act in a manner consistent with there being only one firm in the industry

  Cartel Theory
• 3 Specific Oligopolistic Theories

  1. Kinked Demand Curve Theory
• 3 Specific Oligopolistic Theories

  1. Kinked Demand Curve Theory
  2. Price Leadership Theory
  3. Cartel Theory
• true or false: One of the key characteristics of oligopolistic firm is their mutual interdependence

  true
• It is defined as the difference between the ideal output and the actual output attained in the long run, where ideal output is the output which is produced by the firms where the long-run average cost is at its minimum

  Excess Capacity Theory
• this theory states that a monopolistic competitor will, in equilibrium, produce an output smaller than the one at which average total costs (unit costs) are minimized

  Excess Capacity Theory
• This is a condition that occurs when demand for a product is less than the amount of product that a business could potentially supply to the market.

  Excess Capacity
• 4 Problems are associated with Cartel

  1. forming a cartel
  2. formulating policy
  3. entry into the industry
  4. cheating
• This theory lays more emphasis on the issue of entry into and exit from an industry and less emphasis (than orthodox market structure theories) on the number of sellers in an industry

  theory of contestable markets
• true or false: the monopolistic competition will earn more profit if their product is standard

  false, their product should be differentiated with others
• true or false: the firm in a monopoly, it is possible that their positive turns to zero profit if they used it for capitalization

  true
• for a monopoly, it is possible that they'll gain more positive profit if the market is contestable


  false, their positive profit possibly become zero profit
• for an oligopoly, it is possible that their positive profit turns to zero profit if the market is contestable.


  true
• Perfect Competition has how many sellers?

  many
• is there any barriers on the market structure?

  1. Pure Competition - no
  2. Monopolistic Competition- no
  3. Oligopoly- yes
  4. Monopoly- yes
• Type of the product in the market structures:

  1. Pure Competition- Homogeneous/ Standardized
  2. Monopolistic Competition- Slightly Differentiated
  3. Oligopoly- Homogeneous or Slightly Differentiated
  4. Monopoly- Unique