Download commodity, economy of scale, price discrimination, market power

Chapter 7: Market Structures Study Guide
commodity, economy of scale, price discrimination, market power, price war, price fixing
Vocab:
Perfect Competition
Monopolistic Competition
Definition:
Definition:
4 conditions
1.
4 conditions:
1.
2.
2.
3.
3.
4.
4.
# of Firms:
# of Firms:
Market Power:
Market Power:
Examples:
Examples:
Oligopoly
Monopoly
Definition:
Definition:
# of Firms:
# of Firms:
Market Power:
Market Power:
Examples:
Examples:
Chapter 7: Market Structures Study Guide
Questions:
1. Which market structure will allow you to make the most money? Least?
2. Why do monopolists benefit from price discrimination? Give 2 examples of price discrimination.
3. Our government sometimes restricts the amount of market power a business can have. Why would
they do that?
4. Rank the 4 market structures according to the amount of market power they have (1 being the most).
5. Rank the 4 market structures according to the amount of profit they can make. (1 being the most)
6. Based on the answers to # 4 & 5, which type of market structure would you personally want your
business to be in? Why?
Chapter 7: Market Structures Study Guide
7. True, False, or uncertain and why? “If all of the companies in an industry raise their prices at the
same time, one can be pretty sure that there is collusion or monopoly behavior in this industry?
8. Why would a group of sellers feel that a cartel would offer more opportunity for profits than would a
monopoly? Give an example of how this might look. In the early 1990’s, many nations that grew
coffee beans tried to set up a cartel that would have limited coffee production and stabilize prices at a
higher level. This effort failed. Explain why this effort failed and why it is so hard to create a
successful cartel when there are many members.
9. Although individual farmers do not purchase advertising for their products, it is common for groups
of farmers to join together to do this. In New York, for example, the Upstate Milk Corporative
collects funds from thousands of dairy farmers and uses the money to buy advertisements for milk
products. Explain why this makes sense. What are the farmers trying to accomplish?
10. There are probably 20 or more brands of laundry detergent in the grocery store where your family
shops. Make a list (5 or more) of different ways in which producers try to differentiate one detergent
brand from another. Why can some brands have prices that are much higher than the price of others
and still sell well?
Chapter 7: Market Structures Study Guide
11. Why or what reasoning can you give for the fact that governments usually approve of natural
monopolies? Do you believe that public education is a natural monopoly? Why or Why not? What
monopolies exist in your school? Consider how lunches, yearbooks, and other products are sold at
your sold.
12. Why do oligopolies prefer to use non price competition rather than price competition?
13. Explain whether you believe the following statement is true, false, or uncertain. “Monopolies always
charge the highest possible price.” Explain your answer using concepts from Chapter 7 and be
specific.
14. True, False, or uncertain, and why? “Without government regulations most firms in a capitalist
market system would be monopolies.”