Unformatted text preview: ions that characterize ______
include few sellers, firms that produce and sell
either identical or slightly differentiated products, and significant barriers to entry.
8. An agreement among firms that specifies that
they will act in a coordinated way to reduce the
competition between them is called a(n)
9. A(n) ______ is a right granted to the firm by
the government that permits the firm to provide a particular good or service and excludes
all others from doing so. Understanding the Main Ideas
Write answers to the following questions to review
the main ideas in this chapter.
1. Firm A is a perfectly competitive firm. Why
can’t it sell its product for 1 penny higher than
the equilibrium price?
2. Why is a monopoly seller a price searcher?
3. In at least one sense, a perfectly competitive
firm is like a monopoly firm. Each firm sells its 08 (186-221) EMC Chap 08 4.
9. 10. 11. 12/5/05 2:12 PM Page 221 product for the highest price possible. Do you
agree or disagree? Explain your answer.
How can low average total costs (per-unit costs)
act as a barrier to entry?
What keeps any profits the monopoly seller is
earning from being competed away?
What is a tying contract, and which antitrust act
deems it illegal?
Firms in a monopolistic competitive market
produce slightly different products. In what
ways might these products differ?
What are the two principal determinants of how
much competition a seller in a market faces?
Why might a cartel agreement be more likely in
an oligopolistic market than in a monopolistic
Explain why a firm that entered into a cartel
agreement would cheat on or break that
Can every seller price discriminate? Explain. EXHIBIT 8-4
(a) (b) Firms in market A
earn high profits Firms in market A
losses A Some firms in
market A leave
the market Supply in market A
increases D B Price rises C E Doing the Math
Do the calculations necessary to solve the following
1. A monopoly seller produces and sells 1,000
units of a good at a price of $49.99 per unit. Its
total cost is $30,000. How much profit does it
2. A firm can sell 1 unit of good X at $40, and it
can sell one additional unit for every $1 reduction in price. Its marginal cost is constant at
$34. How many units of the good should the
firm produce? Working with Graphs
1. Exhibit 8-4(a) partly describes what happens in
a competitive market when firms earn high
profits. Fill in the missing boxes A through C.
2. Exhibit 8-4(b) partly describes what happens in
a competitive market when firms in a market
earn losses. Based on your knowledge of what
happens when firms earn high profits, fill in the
missing boxes D and E. Solving Economic Problems
Find solutions to the following problems.
1. Application. Lam goes to a car dealership to
look at cars. The salesperson shows him the cars
he wants to see and drive. The salesperson asks
Lam what he does for a living. What is the economic reason for asking this question?
2. Analysis. Firm A has been producing and selling good A in market A for 10 years. Recently,
other firms moved into market A and started to
produce good A. Firm A asked the government
to restrict the number of firms that can enter
the market. Why would firm A want to restrict
entry into the market? Go to www.emcp.net/economics and choose Economics:
New Ways of Thinking, Chapter 8, if you need more help in
preparing for the chapter test. Chapter 8 Competition and Markets 221...
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This document was uploaded on 01/16/2014.
- Winter '14