Exam 13: Monopolistic Competition and Oligopoly

Monopolistic Competition. Paintless Dent Removal, Inc., was an early innovator in the noninvasive removal of dents, dings, and hail damage from cars, trucks and SUVs. Imitation by traditional auto body repair shops and a host of new rivals is poised to eliminate the company's early lead.

A successfully exploited niche market involves elements of:

Kinked Demand. Brooklyn Broadband, Inc., is a local provider of broadband access to the Internet in Brooklyn, New York. Brooklyn faces the following segmented demand and marginal revenue curves for its residential service: Over the range of 0 to 50(000) customers per month: When output exceeds 50(000) customers per month: The company's total and marginal cost functions are as follows: where P is price (in dollars), Q is output (in thousands), and TC is total cost (in thousands of dollars).

A perfectly functioning cartel results in a:

Price/Output Equilibrium. Osteopathic Devices, Inc., makes products used in the surgical replacement of degenerated bone material. During recent years, its unique hip joint replacement product has successfully exploited a small but profitable niche in the market. The company's monopoly position in this market niche is now threatened by a competitor's announcement of a new device with capabilities similar to those of the Osteopathic product.

A theory used to explain rigid or "sticky" in oligopoly markets is proposed in the:

Price Leadership. Biking Magazine is a dominant price leading firm in the popular bicycle magazine market. Wheel Deal and Free Wheel are competing magazines that address the same audience. Total and marginal cost relations for each magazine are: and the industry demand curve is: Assume throughout this problem that Wheel Deal and Free Wheel are perfect substitutes for Biking magazine.

The demand faced by an industry price leader is:

A kinked demand curve results from:

A perfectly functioning cartel leads to a price/output combination identical to an industry that is:

Price/Output Equilibrium. Sears markets an innovative two-step carpet cleaning process. Because leftover carpet cleaning solutions can act as a magnet for dirt, Sears exclusive two-step carpet cleaning system includes a specially formulated pH-balancing fiber rinse that removes carpet cleaning solution residue right along with deep-down dirt. According to Sear's, all that's left behind is cleaner, softer, more beautiful carpet.

Cartel Pricing. The domestic color separator manufacturing industry is highly concentrated with only three active firms. Color separators are used in the production of high-quality images used to produce glossy color, pamphlets, newspapers, etc. Annual output and the marginal cost of production for production grade models produced by each company are as follows: Competition from low-priced imports has been effectively limited by import tariffs (taxes). Given this import protection, domestic firms are able to sell as much output as they wish at the current wholesale market price of $35,000. However, industry prices haven't risen above $35,000 because this price triggers a flood of foreign competition.

Equilibrium in oligopoly markets is characterized by:

The vigor of competition always decreases with a fall in:

In long-run equilibrium, the monopolistically competitive firm will set a price equal to:

In monopolistically competitive markets, the firm demand curve is:

A firm should increase advertising if the net marginal revenue derived is:

Monopolistic Competition. Soft Lens, Inc., has enjoyed rapid growth in sales and high operating profits on its innovative extended-wear soft contact lenses. However, the company faces potentially fierce competition from a host of new competitors as some important basic patents expire during the coming year. Unless the company is able to thwart such competition, severe downward pressure on prices and profit margins is anticipated.

Price/Output Equilibrium. The domestic sewing machine manufacturing industry is highly concentrated with only three active firms. Annual output and the marginal cost of production for "free arm" models produced by each company are as follows: Competition from low-priced imports has been effectively limited by import tariffs (taxes). Given this import protection, domestic firms are able to sell as much output as they wish at the current wholesale market price of $750. However, industry prices haven't risen above $750 because this price triggers a flood of foreign competition.

Pricing Discretion. Would the following factors increase or decrease the ability of domestic manufacturers to raise prices and profit margins? Why? A. Elimination of uniform product safety standards. B. Increased import tariffs (taxes). C. Increase import quotas. D. A rising value of the dollar that has the effect of lowering import prices. E. A tax on price advertising.