Mankiw 5b: Other Market Structures
Review Questions
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Describe the basic characteristics of the four kinds of market structures.
What do “homogenous” and “differentiated” mean?
Give one example of a firm in each kind of market structure.
What is a monopolist? What creates a monopoly?
Explain, with examples, the barrier to entry of “ownership of a key resource.”
Explain, with examples, the barrier to entry of “legal rights”.
Explain, with examples, the barrier to entry of “economies of scale.” What do
we call this special kind of monopoly?
For many years, Batelco was a regulated monopoly in Bahrain, providing both
internet and cell-phone service. Batelco no longer has a monopoly.
 Explain why cell-phone service was originally a natural monopoly.
 What happened to change the cost structure, enabling other firms to
enter the market?
Define market power. Using graphs, compare and contrast the market power
of a firm in perfect competition with the market power of a monopoly firm.
10. Sketch a generic diagram of a profit-maximizing monopolist, showing the price
and level of output.
11. Sketch a diagram showing a monopolist making an economic profit.
12. Explain why a monopoly can earn supernormal profit even in the long run.
13. Is it possible for a monopolist to lose money? Explain, using a diagram.
14. Using a diagram, explain why the profit-maximizing monopolist will never
operate on the inelastic portion of its demand curve.
15. Sketch a generic diagram of a revenue-maximizing monopolist, showing the
price and level of output.
16. Why is a monopolist’s marginal revenue always less than the price of its good?
17. A small town is served by many competing supermarkets.
 Using the diagram for the market for groceries, show the areas of surplus.
 Now suppose that the independent markets combine into one chain. Using a
new diagram, show the change in surplus. Explain both the transfer of
surplus and the loss of surplus.
18. Using a graph, explain why a monopoly is considered productively inefficient.
19. Using graphs, explain three reasons why a monopoly is considered allocatively
inefficient.
20. Despite these inefficiencies, why might some monopolies be desirable?
21. Give a complete definition of price discrimination.
22. What are the conditions necessary for a firm to be successful in price
discrimination?
23. A brochure from a university lists tuition as $20,000. However, the
university charges students from families with income and wealth below
certain amounts only $5,000. Is this an example of price discrimination?
Explain why or why not.
24. University students in science courses must pay lab fees in addition to tuition.
Is this an example of price discrimination? Explain why or why not.
25. Using examples, explain third-degree price discrimination.
26. Using graphs, explain how a monopolist maximizes profit using second-degree
price discrimination.
27. Using a graph, explain how first-degree price discrimination creates a more
efficient outcome. What is the cost of this increased efficiency?
28. Describe the three characteristics of monopolistic competition.
29. Classify each market as perfectly competitive, monopolistic, or
monopolistically competitive. Justify each answer.
• wooden no. 2 pencils
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peanut butter
• lipstick
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electricity
30. Give an example of a market in Bahrain that is in monopolistic competition.
Justify your choice using the characteristics of monopolistic competition.
31. How is monopolistic competition like a monopoly? Like perfect competition?
32. Draw a diagram depicting a firm in a monopolistically competitive market that
is making profits. Explain what happens to this firm as new firms enter the
market, drawing a new diagram.
33. Draw a diagram depicting a firm in a monopolistically competitive market that
is making losses. Explain what happens to this firm as firms leave the market,
drawing a new diagram.
34. Explain the long-run profit potential for monopolistically competitive markets.
35. Examine the level of efficiency in the long-run in monopolistic competition.
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Describe, using examples, the characteristics of an oligopoly.
Explain how a concentration ratio may be used to identify an oligopoly.
Explain how strategic behavior may lead to non-collusive price leadership.
Describe in detail how the kinked demand curve model explains the price
stability present in oligopolistic markets.
40. Distinguish between price leadership and a price war.
41. What is collusion? Why collusion illegal in most countries?
42. What is a cartel? What are the goals of a cartel?
43. What industry characteristics are necessary for a cartel to be successful?
44. If oligopolists would be better off if they collude, why do they so often fail to
cooperate?