ECON 2102 Chapter 8 | Questions and Correct
Verified Answers
if the average cost of production declines as the number of units produced increases, then the
production process exhibits ___ - ✔✔economies of scale
price setter - ✔✔a firm with at least some latitude to set its own price. The competitive firm
> Ex. The holder of a copyright
price taker - ✔✔a firm with no influence over the price of its product
pure monopoly - ✔✔the only supplier of a unique product with no close substitutes
> Ex. producer of Magic trading cards
monopolistic competition - ✔✔an industry structure in which a large number of firms produce
slightly differentiated products that are reasonably close substitutes for one another
> Ex. local gasoline retailing
> not perfect competition
monopolistically competitive firms can't expect to earn positive economic profits in the long run
because ___ - ✔✔entry and exit of firms is similar to perfect competition, since entry and exit
from the market ensures the invisible hand is in effect since there isn't a complete monopoly
an issue monopolisticially competitive firms face is - ✔✔how to differentiate their products
from those of existing rivals.
, > Should a product be made to resemble a rival's product, be different from it, or something in
between?
oligopoly - ✔✔an industry structure in which a small number of large firms produce products
that are either close or perfect substitutes
in the long run, oligopolists ___ earn a positive economic profit. - ✔✔might or might not
whereas the perfectly competitive firm faces a ___ demand curve for its product, the imperfectly
competitive firm faces a ___ demand curve. - ✔✔> perfectly elastic
> downward-sloping
In the perfectly competitive industry, the supply and demand curves intersect to ___ -
✔✔determine an equilibrium market price
market power - ✔✔a firm's ability to raise the price of a good without losing all its sales
5 sources of market power: - ✔✔1.) EXCLUSIVE CONTROL OVER IMPORTANT
INPUTS
2.) PATENTS AND COPYRIGHTS
3.) GOVERNMENT LICENSES OR FRANCHISES
4.) ECONOMIES OF SCALE AND NATURAL MONOPOLIES
5.) NETWORK ECONOMIES
EXCLUSIVE CONTROL OVER IMPORTANT INPUTS - ✔✔If a single firm controls an
input essential to the production of a given product, that firm will have market power. For
example. to the extent that some US. tenants are willing to pay a premium for office space in the
country's tallest building, One World Trade Center, the owner of that building has market power.
PATENTS AND COPYRIGHTS - ✔✔Patents give the inventors or developers of new
products the exclusive right to sell those products for a specified period of time. By insulating
Verified Answers
if the average cost of production declines as the number of units produced increases, then the
production process exhibits ___ - ✔✔economies of scale
price setter - ✔✔a firm with at least some latitude to set its own price. The competitive firm
> Ex. The holder of a copyright
price taker - ✔✔a firm with no influence over the price of its product
pure monopoly - ✔✔the only supplier of a unique product with no close substitutes
> Ex. producer of Magic trading cards
monopolistic competition - ✔✔an industry structure in which a large number of firms produce
slightly differentiated products that are reasonably close substitutes for one another
> Ex. local gasoline retailing
> not perfect competition
monopolistically competitive firms can't expect to earn positive economic profits in the long run
because ___ - ✔✔entry and exit of firms is similar to perfect competition, since entry and exit
from the market ensures the invisible hand is in effect since there isn't a complete monopoly
an issue monopolisticially competitive firms face is - ✔✔how to differentiate their products
from those of existing rivals.
, > Should a product be made to resemble a rival's product, be different from it, or something in
between?
oligopoly - ✔✔an industry structure in which a small number of large firms produce products
that are either close or perfect substitutes
in the long run, oligopolists ___ earn a positive economic profit. - ✔✔might or might not
whereas the perfectly competitive firm faces a ___ demand curve for its product, the imperfectly
competitive firm faces a ___ demand curve. - ✔✔> perfectly elastic
> downward-sloping
In the perfectly competitive industry, the supply and demand curves intersect to ___ -
✔✔determine an equilibrium market price
market power - ✔✔a firm's ability to raise the price of a good without losing all its sales
5 sources of market power: - ✔✔1.) EXCLUSIVE CONTROL OVER IMPORTANT
INPUTS
2.) PATENTS AND COPYRIGHTS
3.) GOVERNMENT LICENSES OR FRANCHISES
4.) ECONOMIES OF SCALE AND NATURAL MONOPOLIES
5.) NETWORK ECONOMIES
EXCLUSIVE CONTROL OVER IMPORTANT INPUTS - ✔✔If a single firm controls an
input essential to the production of a given product, that firm will have market power. For
example. to the extent that some US. tenants are willing to pay a premium for office space in the
country's tallest building, One World Trade Center, the owner of that building has market power.
PATENTS AND COPYRIGHTS - ✔✔Patents give the inventors or developers of new
products the exclusive right to sell those products for a specified period of time. By insulating
