Review Sheet Test on Thursday, 4/25/2013 Monopoly, Oligopoly

Review Sheet
Test on Thursday, 4/25/2013
Monopoly, Oligopoly, and Monopolistic Competition
There will be multiple choice questions and a problem on Monopoly.
Monopoly – Modules 61-63 and parts of Module 57
1.) Characteristics of monopoly.
2.) Know the barriers to entry.
3.) Profit- maximizing firm produces where MC=MR. Price is not equal to MR for the monopolist, so you
need to take the point of equilibrium up to the demand curve to indicate the price the monopolist
4.) Know why the demand curve (and thus the price) is always > that the MR for the monopolist.
5.) Know how to tell which portion of the demand curve is elastic and inelastic.
6.) Short-run – Monopolist can make profits, losses or break-even. Long-run – monopolist can continue
to make profits because entry into industry is blocked.
7.) Understand how a monopolist can price discriminate.
8.) A monopolist under allocates production to charge a higher price ( Price > MC). Know that a
monopolist is neither allocatively nor productively efficient in the short nor long run.
Be able to identify the area of deadweight loss that results from a monopoly to demonstrate it is not
allocatively efficient. The area of deadweight loss results because at the higher monopolist price,
compared to P.C., some mutually beneficial transactions don’t occur.
9) Regulating monopolies – know how to find the socially optimal price and fair return price.
Monopolistic Competition and Oligopoly -- Modules 64-67 and parts of Module 57
1.) Know the characteristics of monopolistic competition (M.C.) and oligopoly, and the graph for
monopolistic competition.
2.) Know examples of oligopolistic and M.C. industries.
3.) Know what excess capacity means – graphically it is the gap between minimum ATC and where the
M.C. firm produces. They don’t produce at their potential capacity because the industry is cluttered
with many firms producing similar products.
M.C. is neither productively nor allocatively efficient. The trade-off is they provide more choice and
variety than perfect competition.
4.) Understand the significance of oligopolies being mutually interdependent.
5.) Know why an oligopoly has a kinked demand curve.
5.) Game Theory – dominant strategies and Nash Equilibrium.
6.) Understand price leadership and why prices in oligopoly are “sticky”.