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What is the defining characteristic of an imperfect market?
What is the defining characteristic of an imperfect market?
In a monopolistic competition market, some businesses can have a larger market share than others.
In a monopolistic competition market, some businesses can have a larger market share than others.
True
What marketing technique creates demand by limiting supply?
What marketing technique creates demand by limiting supply?
scarcity marketing
In a _____ market, one firm acts as the sole supplier of a product.
In a _____ market, one firm acts as the sole supplier of a product.
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Which of the following describes an oligopoly?
Which of the following describes an oligopoly?
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Match each market type with its corresponding characteristics:
Match each market type with its corresponding characteristics:
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In a perfect market, consumers do not change suppliers when prices increase.
In a perfect market, consumers do not change suppliers when prices increase.
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An _____ market has no barriers to entry for firms.
An _____ market has no barriers to entry for firms.
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What is a characteristic of an imperfect market?
What is a characteristic of an imperfect market?
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In an imperfect market, average revenue decreases as more units are sold at cheaper prices.
In an imperfect market, average revenue decreases as more units are sold at cheaper prices.
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What does MR stand for in the context of an imperfect market?
What does MR stand for in the context of an imperfect market?
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In a monopoly, there is typically _____ business in the market.
In a monopoly, there is typically _____ business in the market.
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At which level of output does total revenue stop increasing despite more units sold?
At which level of output does total revenue stop increasing despite more units sold?
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Match the following terms with their definitions:
Match the following terms with their definitions:
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A natural monopoly has a low fixed cost and allows for many competitors to enter the market.
A natural monopoly has a low fixed cost and allows for many competitors to enter the market.
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What is the formula to calculate Total Revenue (TR)?
What is the formula to calculate Total Revenue (TR)?
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What characterizes a local monopoly?
What characterizes a local monopoly?
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A monopolist maximizes profits where marginal cost equals average revenue.
A monopolist maximizes profits where marginal cost equals average revenue.
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What type of monopoly arises from anti-competitive practices?
What type of monopoly arises from anti-competitive practices?
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A business incurs a loss when ______ is lower than ______ at the profit-maximizing output.
A business incurs a loss when ______ is lower than ______ at the profit-maximizing output.
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Which of the following is a characteristic of oligopolies?
Which of the following is a characteristic of oligopolies?
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Supernormal profit occurs when average revenue is below average cost.
Supernormal profit occurs when average revenue is below average cost.
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What is meant by 'collusion' in the context of oligopolies?
What is meant by 'collusion' in the context of oligopolies?
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Match the following terms related to monopolies and oligopolies.
Match the following terms related to monopolies and oligopolies.
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What is one way collusion occurs among oligopolies?
What is one way collusion occurs among oligopolies?
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In oligopolies, if one firm raises its price, it is likely to lose a significant market share to its competitors.
In oligopolies, if one firm raises its price, it is likely to lose a significant market share to its competitors.
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What represents the profit maximization point in an oligopoly with a kinked demand curve?
What represents the profit maximization point in an oligopoly with a kinked demand curve?
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In monopolistic competition, businesses differentiate their products to create __________.
In monopolistic competition, businesses differentiate their products to create __________.
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Match the following terms with their descriptions:
Match the following terms with their descriptions:
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What is a characteristic of monopolistic competition?
What is a characteristic of monopolistic competition?
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The kinked demand curve indicates that if one firm lowers its price, other firms will also lower theirs.
The kinked demand curve indicates that if one firm lowers its price, other firms will also lower theirs.
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Which concept describes a formal agreement among oligopolies to restrict production?
Which concept describes a formal agreement among oligopolies to restrict production?
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Study Notes
Imperfect Markets Overview
- Imperfect markets are markets where perfect competition does not exist.
- Businesses in imperfect markets have the power to influence prices because their products are not perfect substitutes.
Units of Study
- Unit 1: Dynamics of imperfect markets
- Unit 2: Monopolies
- Unit 3: Oligopolies
- Unit 4: Monopolistic competition
Imperfect Market Characteristics
- Few to multiple businesses
- Businesses have some influence over price
- Products may be similar or differentiated (not perfect substitutes)
- Barriers to entry
- Non-price competition (e.g., advertising, branding, loyalty schemes)
Monopoly
- Single business dominates the market.
- Unique products
- High barriers to entry
- Price setters (influence pricing)
- Imperfect market information
- Types: Natural (high fixed costs), State-owned, Local, Artificial (uncompetitive practices)
Monopoly Characteristics and Behaviors
- Profit maximization occurs where MC = MR.
- Price is set by AR curve at the profit maximizing quantity.
- Supernormal profits (profits exceeding normal return on investment) are possible.
- Losses are possible, if costs are high and revenue low.
Oligopoly
- Small number of large businesses dominating the market.
- Non-price competition is key to compete.
- High startup costs.
- Businesses carefully observe competitors' actions
- Product differentiation is common.
- Important types of collusion are cartels and price leadership.
- The Kinked demand curve model explains the rigid nature of prices.
Oligopoly Collusion
- Businesses in an industry working together to avoid competition, and increase profits.
- Cartels (formal agreements among firms) and price leadership (dominant firm influencing competitors' pricing decisions) are key ways collusion occurs.
- Price war results from price changes influencing competitors, impacting all participants in the market.
- The kinked demand theory explains stable prices within oligopolies
Oligopoly Kinked Demand Curve
- Businesses may keep prices stable even if costs change
- Because, if one business increases price, others are likely to respond by lowering their prices, and the competitor that increased price will likely lose a significant market share.
- If one business lowers its price others are likely to respond with the same price change, so the result is that prices tend to remain relatively similar.
Monopolistic Competition
- Many producers that sell differentiated products.
- Heterogenous products.
- Many buyers and sellers.
- Low barriers to enter and exit the market.
- Businesses are price setters.
- Imperfect market information.
- Examples include food restaurants and clothing stores.
- Supernormal/normal profit determined by whether the Average Revenue curve is above/at the level of the Average Cost curve.
Market Comparisons
- A comparison table outlines different market structures (perfect, monopoly, oligopoly, monopolistic competition) according to number of firms, product nature, price, barriers to entry, collusion, information availability, and profit sizes.
Cost and Revenue Curves
- Marginal Cost (MC), Average Cost (AC), Total Cost, Marginal Revenue (MR), and Average Revenue (AR) curves graphically illustrate cost and revenue implications in markets.
- Total revenue: money received from selling their products
- Total revenue = Price per unit x Quantity
- Profit maximization in imperfect markets occurs where MC = MR
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Description
Explore the concept of imperfect markets, where competition is limited and businesses can influence prices. This quiz covers key characteristics of monopolies, oligopolies, and monopolistic competition, as well as the dynamics of these markets. Test your understanding of how these market structures operate.
