Introduction to Economics 1 Dersi 7. Ünite Sorularla Öğrenelim

What is Oligopoly?

Oligopoly is a market structure with few firms. Each firm in the market produces a large share of the total market quantity and hence can influence the market price.

What is Monopoly?

Monopoly is a market structure with only one producer/seller of a good and it does not act as a price taker but as a price setter

A monopoly exists in a market when there are barriers to entry. What are they?

1.Government regulations

2.Ownership of a key resource

3.Natural Monopoly

When does a natural monopoly occur?

A natural monopoly occurs when economies of scale are so large that one firm can supply the entire market at a lower average cost than two or more firms.

What is the difference between a perfectly competitive market and a monopoly?

Compared to a perfectly competitive market, a monopoly produces less than
the socially efficient quantity of output and charges a relatively higher price, hence creates a deadweight loss.

Why is perfect price discrimination is difficult to do for the monopolist?

Perfect price discrimination is difficult to do for the monopolist because the monopolist needs to know maximum willingness to pay of each consumer for each unit purchased.

There are two outcomes that are possible in an oligopoly.What are they?

1.Collusion

2.Competition

What is Collusion?

Collusion is an agreement among firms to charge the same price or decide on quantities in cooperation with each other

When does competition occur?

Competition occurs when each producer maximizes its profits by choosing its own price or quantity without consulting other firms.

In all games--chess, poker, or Monopoly--the interactions among the players are crucial in determining the outcome. What characteristics do games have?

1. Rules that determine which actions are allowable
2. Strategies that players employ to attain their objectives in the game
3. Payoffs that are the results of the interaction among the players’ strategies
The payoffs in an oligopoly context are the profits earned as a result of a firm’s strategies interacting with the strategies of other firms.

What does Nash Equilibrium represent?

Nash Equilibrium represents a situation among the interacting firms, each of
which chooses their best strategy given the strategies that all the other firms have already been chosen.

What is Dominant Strategy?

Dominant Strategy: A dominant strategy is the best response strategy for a firm, no matter what strategies other firms use.

What is Monopolistic competition?

Monopolistic competition is a market structure where there are many firms that
sell differentiated products. Each firm has a monopoly over the product it sells, but many other firms make similar products that compete for the same customers.

The monopolist charges the same price for each unit sold to each consumer. What is this called ?

Uniform pricing

In many cases, firms sell the same good to different customers at different prices.What is this practice called ?

Price discrimination.

What does a demand curve represent?

A demand curve represents the maximum willingness of consumers to pay the price for each additional unit.

Since the market curve is downward sloping, what does the monopoly face?

The monopoly faces a trade-off.

If a monopoly’s marginal revenue is less than its price,what must it do in order to increase its output by one unit ?

In order to increase its output by one unit, a monopoly must reduce the price it charges for every unit and this cut in price reduces the revenue on the units it was already selling.

When a monopoly increases the amount it sells, this action has two effects on the total revenue .What are they?

The output effect and the price effect.

Describe the output effect.

The output effect: More output is sold, so Q is higher, which tends to increase the total revenue.

Descibe the price effect.

The price effect: The price falls, so P is lower, this tends to decrease the total revenue.