9 an is a right granted to the firm by the government

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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) ______ agreement. 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. 5. 6. 7. 8. 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 competitive market? Explain why a firm that entered into a cartel agreement would cheat on or break that agreement. Can every seller price discriminate? Explain. EXHIBIT 8-4 (a) (b) Firms in market A earn high profits Firms in market A are incurring 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 problems. 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 earn? 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 and Tables 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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