1. FILL IN THE BLANK: In a financial sense, economies of scale are a barrier to

Question

1. FILL IN THE BLANK: In a financial sense, economies of scale are a barrier to entry for small-scale producers because they cannot compete with large-scale producers based on __________.

2. a. Suppose you want to start a radio station broadcasting out of your basement. What barrier(s) to entry are you likely to encounter?

b. Years ago, Advil was a patented drug that could only be manufactured and sold by one company (by the same name, Advil). Then, the patent expired, and other companies were able to produce and sell the same drug under the generic name ibuprofen. What impact, if any, is this likely to have had on Advil's profits?

3. Compare the pure monopolist and the individual pure competitor with respect to a. the demand schedule i. pure monopolist ii. pure competitor b. the marginal revenue schedule i. pure monopolist ii. pure competitor c. the relationship between marginal revenue and average revenue i. pure monopolist ii. pure competitor d. price policy (HINT: what do they set price equal to?)

i. pure monopolist

ii. pure competitor e. the ability to administer (or set) price

i. pure monopolist ii. pure competitor f. the "supply curve"

i. pure monopolist ii. pure competitor

4. Explain why marginal revenue is always less than average revenue (price) when demand is less than perfectly elastic. (HINT: think about how an additional unit, sold at a lower price, impacts the overall average.)

5. For each of the following, list one real-world example of a firm or product that exhibits this type of product differentiation: a. product attributes b. service c. location d. brand name e. some control over price

6. How does the demand curve faced by a monopolistically competitive firm differ from that faced by a pure monopoly firm?

7. Suppose that entrepreneurs discover monopolistically competitive firms are earning large economic profits in a given industry. What are they likely to do? What will be the result for long run profits in the industry? 8. (1 point) What happens to efficiency and capacity when monopolistically competitive firms produce where their ATC meets the demand curve? (Name and explain the specific concepts.)

9. What benefit or benefits do monopolistically competitive firms provide for consumers?

10. Pick an oligopolistic industry (you can choose one from Table 13.2 if you'd like). Explain how it fits into the essential characteristics of an oligopoly by responding to the following prompts.

a. Who are the few large producers?

b. What product is being produced? Is it homogeneous or differentiated?

c. How do the firms use price, quality, location, service, and advertising strategies to exert control over prices?

d. Do you think cost is a barrier to entry in the industry? (Just answer yes or no.)

e. Have there been any recent real-world mergers in the industry? (Don't just say "no" without looking into it. Make sure you at least do a quick internet search.)

11. a. Why do oligopolists find it advantageous to collude?

b. What are the obstacles to collusion?

12. In the context of kinked-demand theory, explain why oligopoly firms often conclude it would be worse to raise their prices, but it also would be worse to lower them.

13. Briefly explain one of the leadership tactics oligopolistic firms use.

14. a. Advertising from oligopoly firms can result in benefits for consumers by doing what to product prices?

b. Your textbook mentions a number of negative aspects of oligopoly advertising. List one and briefly describe it.

15. What do oligopolies invest in when they are trying to attract consumers to their products? (HINT: the thing they invest in generally improves efficiency.)

Explanation / Answer

1. falling average cost/ average total cost( in economies of scale total cost fall with increase in output)

2. Barriers to entry

* Huge initial production cost

* Excess capacity by incumbent

* Threat of predatory pricing by incumbent

* Low initial profitability

2(b) Advil profitability will fall. Because generics are available at lower cost . So quantity demanded for Advil will fall substantially reducing profit.

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