Exam 12: Between Competition and Monopoly

Sticky prices are a direct result of the kinked demand curve.

To maximize sales revenue, an oligopolist will expand output until the elasticity of demand becomes

Firms in a perfectly contestable market will be forced to operate as efficiently as possible and to charge prices as low as long-run financial survival permits.Why?

Can positive economic profits persist under monopolistic competition in the long run.Why?

The excess capacity theorem states that society would clearly benefit from a reduction in the number of monopolistic competitors.

An oligopolist who sets the price for the industry is a price leader.

Monopolies can misallocate resources by restricting output in an attempt to raise prices and profits.

Identify the market structure characterized by many small firms selling somewhat different products.

Excess capacity and inefficiency result under monopolistic competition.

In the long run, a monopolistically competitive firm earns small economic profits.

An oligopoly is a market structure in which a few large firms dominate the sale of a single product.

In John Rawls' A Theory of Justice, people choose the rules for distributing income from behind a veil of ignorance.People understand that ability determines income, but they do not know their abilities or the abilities of others.Rawls argues that people are risk averse and will choose the distribution rule that maximizes their income in the worst case scenario (they have relatively little ability).An economist would call this strategy

Explain the prisoner's dilemma case in game theory and its relevance to the maximin criterion.

What are the advantages and disadvantages of resource allocation under monopolistic competition compared to perfect competition?

Which of the following is not a requirement for the existence of monopolistic competition in a market?

Monopolistic competition tends to lead firms to have wasted capacity.Why?

Explain how a large number of firms in the industry and product heterogeneity affect the likelihood of cartel success.

The goal of the manager of a firm is sales maximization.The firm will produce

Economic theory of market forms between pure monopoly and perfect competition was largely nonexistent until the work of

Baumol and Blinder argue that oligopolies are interdependent firms.What do they mean by this? Give three examples of the types of interdependence which might occur.