Flashcards
Imperfect Competition
Cards in this deck (17)
- 1What are the criteria for Monopolistic Competition?Many firms
Differentiated products
No barriers to entry - 2What are the criteria for Oligopoly?Few firms
Identical or differentiated products
Some barriers to entry - 3Name two forms of imperfect competitionOligopoly and monopolistic competition.
They lie between monopoly and perfect competition - 4Define Nash equilibrium. Why do firms in oligopoly reach Nash equilibrium?Nash equilibrium is the best a firm can do taking into account the actions of other firms. Oligopolies reach Nash equilibrium because no firm has the incentive to change its behaviour one the market is stable
- 5Why are collusions often unstable?Because there is often a strong incentive to cheat and take more of the market share and thus increase profit. Cartels are illegal, so there is no legal consequences of cheating.
- 6What is Bertrand competition?Oligopoly model in which each firm chooses the price of its products.
- 7What is Cournot competition?Oligopoly model in which each firm chooses its production quantity.
- 8What is the market equilibrium in Bertrand competition with identical goods?In Bertrand competition, the outcome is the same as in Perfect Competition. Each firm has the incentive to steal market share by cutting prices, until price falls to production cost.
- 9Why do Bertrand and Cournot competition reach different equilibria?Bertrand: Set prices simultaneously and cut prices until same outcome as in PC.
Cournot: Set quantities simultaneously and sell at market price. Equilibrium where firms reaction curves intersect. - 10What does the residual demand curve tell us about a firm's output in Cournot competition?The residual demand curve gives the demand remaining for a firm's output given it's competitors' output.
- 11How can reaction curves be used to find a firm's equilibrium in Cournot competition?Firms share market quantities, so a firms reaction curve will depend on the other's optimal output. Equilibrium is where the reaction curves intersect.
- 12What is Stackelberg competition?Oligopoly model in which firms make production decisions sequentially.
- 13What causes the first-mover advantage in Stackelberg competition?First-mover advantage lets the firm substitute the other firms reaction curve into own production decision. First-mover decide quantity and the second firm must follow.
- 14How does equilibria differ between Bertrand with identical and with differentiated products?Bertrand, identical: Price cuts drives economic profit to zero.
Bertrand differentiated: Small differences in price does not lead to all demand being satisfied by the cheapest option - 15How is differentiated Bertrand calculated?Same as Cournot, but with focus on price instead of quantity
- 16When does firms enter a monopolistically competitive market? When does entry stop?Enter when there is economic profit (Price is higher than ATC)
Stop entering when Price=ATC
(More firms increase supply which drives down price) - 17Why do firms in monopolistic competition not reach the perfectly competitive equilibrium?Firms in monopolistic competition are not price-takers, they face a downward sloping demand curve and set prices above MR=MC
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- Microeconomics (Exam 2017) Flashcards on Imperfect Competition, created by Linnéa Ekberg on 14/10/2017.
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- Linnéa Ekberg · Oct 2017
- Updated
- Oct 14, 2017
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