All Flashcards
How do barriers to entry affect long-run profits?
High barriers to entry allow firms to sustain economic profits in the long run, as new firms cannot easily enter to compete away those profits.
How does product differentiation impact demand?
Product differentiation creates brand loyalty, making the demand curve for a firm's product less elastic.
How does advertising affect monopolistic competition?
Advertising increases demand and differentiates products, but also increases costs, impacting profitability.
How does interdependence affect oligopolies?
Firms must anticipate rivals' actions when making decisions, leading to strategic interactions and potential collusion.
How does price discrimination increase profits?
By charging different prices to different groups, a firm can capture more consumer surplus and increase overall revenue.
How does MR relate to DARP in a monopoly?
Marginal Revenue (MR) is below Demand, Average Revenue, and Price (DARP) curve.
How do patents create monopolies?
Patents give a firm exclusive rights to produce a product, preventing competition and creating a monopoly.
How does zero economic profit arise in monopolistic competition?
Low barriers to entry allow new firms to enter, increasing supply and driving down prices until economic profits are eliminated.
How does a dominant strategy simplify decision-making?
It provides a clear best option regardless of what competitors do, removing uncertainty.
How does collusion affect market outcomes?
Collusion allows firms to act like a monopoly, raising prices and reducing output, harming consumers.
How does a firm maximize profit?
Produce where MR = MC to maximize profit, then raise the price to the demand curve at that quantity.
What is the impact of government regulation on natural monopolies?
Regulation can force natural monopolies to lower prices and increase output, improving efficiency.
What is the impact of antitrust laws on oligopolies?
Antitrust laws prevent collusion and promote competition, leading to lower prices and increased output.
What is the impact of patents on innovation?
Patents incentivize innovation by granting temporary monopoly power, but also create deadweight loss.
What are the differences between perfect competition and monopolistic competition?
Perfect competition has identical products and no market power, while monopolistic competition has differentiated products and some market power.
What are the differences between monopoly and oligopoly?
Monopoly has a single firm, while oligopoly has a few dominant firms. Oligopolies are interdependent, monopolies are not.
What are the differences between price discrimination and single-price monopoly?
Price discrimination eliminates deadweight loss and captures all consumer surplus, while single-price monopoly creates deadweight loss and consumer surplus.
What are the differences between monopolistic competition and oligopoly?
Monopolistic competition has many firms and low barriers to entry, while oligopoly has few firms and high barriers to entry.
What are the differences between Nash Equilibrium and Dominant Strategy?
Dominant strategy is the best choice regardless of what others do, Nash equilibrium is a stable state where no one wants to change given others' strategies.
What are the differences between price takers and price makers?
Price takers accept the market price, while price makers can influence the market price.