Market Structures Quiz & Flashcards

Perfect competition involves many buyers and sellers; the other options describe other market structures.

A monopolist faces a downward-sloping demand curve as it is the sole provider of the product.

In an oligopoly, firms are interdependent because each firm's decisions affect the others.

Price discrimination aims to maximize profits by charging different prices based on consumers' willingness to pay.

Product differentiation in monopolistic competition is achieved by offering unique features.

A natural monopoly arises when a single firm can supply the entire market at a lower cost than multiple firms.

Oligopoly features interdependent decision-making, not independent, due to few firms influencing the market.

A price ceiling below equilibrium causes a shortage as quantity demanded exceeds quantity supplied.

The Cournot model describes quantity competition among firms in an oligopoly.

HHI measures market concentration, indicating the level of competition in a market.

Firms in monopolistic competition often have excess capacity due to product differentiation and many competitors.

Nash equilibrium occurs when no firm can benefit by changing its strategy if others keep theirs unchanged.

A cartel is a group of firms that collude to control market prices or output.

Student discounts are a form of price discrimination, charging different prices to different consumers.

A perfectly competitive firm's demand curve is horizontal because it is a price taker.

Firms in perfect competition have no market power as they are price takers.

The kinked demand curve theory explains price stability in oligopolies due to perceived demand elasticity differences.

Firms in monopolistic competition often engage in non-price competition to differentiate their products.

Patents create a temporary monopoly by protecting a firm's invention from competition.

Deadweight loss is the loss of total welfare when market output is not at the efficient level.

Oligopolies may set prices through collusion, either explicitly or tacitly, to maximize joint profits.

A duopoly is a market structure with two dominant firms.

Perfect competition achieves allocative efficiency as firms produce where price equals marginal cost.

Predatory pricing forces competitors out by setting prices below cost, intending to raise them later.

Productive efficiency is achieved when firms produce at the lowest possible cost.

High startup costs act as a primary barrier to entry, preventing new firms from entering a monopoly.

Oligopolies are prone to collusion due to few firms and mutual interdependence.

The Lerner Index measures market power by comparing price to marginal cost.

In the long run, firms in monopolistic competition earn zero economic profit due to free entry and exit.

Advertising in monopolistic competition aims to differentiate products and build brand loyalty.

Significant economies of scale act as a barrier to entry in an oligopoly, deterring new entrants.

X-inefficiency occurs when a firm operates at higher costs than necessary due to lack of competition.

The kinked demand curve theory applies to oligopolies, highlighting price rigidity.

Strategic entry deterrence often involves lowering prices temporarily to discourage new competitors.

Perfect competition has the largest number of firms, characterized by many small sellers.

Monopolistic competition is characterized by product differentiation, with firms offering unique products.

A monopoly increases producer surplus by raising prices above competitive levels.

In perfect competition, long-run profits are zero due to free entry and exit equalizing price and average cost.

Economies of scale lower average costs as output increases, benefiting firms with larger production volumes.

A monopoly is characterized by a single firm with significant market power and barriers to entry.

Government regulation in monopolies aims to prevent market abuse and protect consumer interests.

A monopolist maximizes profit where marginal cost equals marginal revenue, setting price based on demand.

Oligopolies are prone to price wars due to interdependent firm strategies and competition for market share.

A price floor above equilibrium causes a surplus as quantity supplied exceeds quantity demanded.

A payoff matrix illustrates strategic interactions among players, showing potential outcomes of different strategies.

Contestable market theory describes a market with low entry and exit barriers, making it competitive despite few firms.

Product differentiation in monopolistic competition leads to higher consumer loyalty and perceived product uniqueness.

Firms in perfect competition are price takers, accepting the market price without influence.

Monopolies result in higher prices for consumers due to lack of competition and market power.

Excess capacity is common in monopolistic competition due to product differentiation and competitive pressures.

A price ceiling can increase consumer surplus by keeping prices below equilibrium, benefiting consumers.

Oligopoly is characterized by interdependent firms whose decisions affect one another.

Oligopolies often experience price rigidity due to the kinked demand curve and strategic interdependence.