Econ Exam 2 Chapter 10

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  1. # of firms: Many
    Products differentiated or homogeneous: Homogeneous
    Price a decision variable:No
    Easy Entry: Yes
    Distinguished by: No price competition
    Examples: Wheat farmer
    Perfect competition
  2. # of firms: One
    Products differentiated or homogeneous: a single unique producte
    Price a decision variable:YEs
    Easy Entry: no
    Distinguished by: Still constrained by market demand
    Examples: Public utility, patent drug
  3. # of firms: Many
    Products differentiated or homogeneous: Differentiated
    Price a decision variable: Yes but limited
    Easy Entry: Yes
    Distinguished by: Price and quality competition
    Examples: Restaurants, hand soap
    Monopolistic Competition
  4. # of firms: Few
    Products differentiated or homogeneous:Either
    Price a decision variable:Yes
    Easy Entry: Limited
    Distinguished by: Strategic behavior
    Examples: Automobiles, aluminum
  5. Monopolistic competition
    • A common form of industry (market) structure in the united states characterized by 
    • Large number of firms
    • No barriers to entry 
    • Product differentiation
    • Acts as a monopolist for it's particular version of the product
  6. Monopolistic Competition v. Monopoly
    • Firms cannot influence the market price by virtue of size
    • Good (but not "perfect") substitutes exist
    • Unrestricted entry and exit (zero profit in the long run)
    • Firms differentiate their product
  7. Product differentiation
    • A strategy that firms use to achieve market power
    • Types
    • -Physical: appearance, quality
    • -Location: spatial differentiation
    • -Service
    • -Product image: Promotion, advertising, marketing, packaging
  8. Oligopoly
    • A form of industry (market) structure characterized by a few dominant and interdependent firms
    • -Homogenous or differentiated
    • -Significant barriers
    • -Few firms
    • Behavior depends on behavior of other firms in the industry comprising the oligopoly
  9. Collusion
    The act of working with other producers in an effort to limit competition and increase joint profits
  10. Cartel
    A group of firms that gets together and makes joint price and output decisions to maximize joint profits
  11. Tacit collusion
    • Collusion occurs when price and quantity-fixing agreements among producers are explicit
    • Tacit collusion occurs when such agreements are implicit
  12. Price leadership
    • A form of oligopoly in which one dominant firm sets prices and all the smaller firms in the industry follow its pricing policy
    • Assumes the industry is made up of one dominant firms and number of smaller firms
  13. Perfectly contestable market
    • A market in which entry and exit are costless
    • -Even large oligopolistic firms end up behaving like perfectly competitive firms
    • Positive profits do not exist
    • Threat of competition can force prices down
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Econ Exam 2 Chapter 10
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