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BIG PICTURE IDEAS

#1. For perfect competition, demand and marginal revenue are .. . For imperfect competition, demand is
.. than marginal revenue.
#2. A market controlled by one firm with high barriers to entry is called a .. .
#3. Price .. is the idea of selling the same product to different people for different prices.
#4. Firms in a monopolistically competitive market sell .. products, face low barriers to entry, and earn
no economic profit in the .. run.
#5. An .. is made up of few interdependent firms that have a tendency to collude. When competing,
they use .. theory to determine the best course of action.

Topic 4.1- Imperfect Competition

1. On the vertically stacked graphs to the right, draw the Perfectly Competitive Firm Imperfect Competition
demand and marginal revenue on the top graph and the
total revenue on the bottom graph for each type of firm.
2. Explain why the demand equals the marginal revenue in
perfect competition.

3. Explain why the demand is greater than marginal revenue

for imperfectly competitive firms.

4. On the stacked graphs to the right, identify the inelastic

and/or elastic ranges of the demand curves.
5. Imperfectly competition always produce in the
.. range of the demand curve.
6. Total revenue is maximized when MR is .. .

Topic 4.2- Monopoly

7. Identify three examples of barriers to 10. Draw a monopoly making a profit. 11. Draw a monopoly making a loss.
entry.

True or False
8. If a monopoly is earning economic profit,
other firms will enter the market.
9. Monopolists can maximize total revenue
by producing where MR = MC.
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Topic 4.2- Monopoly (continued)

Use the graph to the left to identify the following.

12. Price and quantity for an unregulated monopoly.

13. Profit for an unregulated monopoly.

14. Consumer surplus for an unregulated monopoly.

15. Deadweight loss for an unregulated monopoly.

16. Price and quantity at the allocatively e cient output.

17. Quantity where total revenue is maximized.

18. The price and quantity where the firm makes no economic profit.

19. Is the demand at the price $25 in the elastic or inelastic range of the
demand curve?

20. A .. monopoly is when it is best to have only one firm in an industry due to economies of scale.

Topic 4.3- Price Discrimination Topic 4.4- Monopolistic Competition

21. Identify the three conditions necessary for a firm to price 25. How is monopolistic competition different from perfect
discriminate. competition?

22. If a regular unregulated monopoly started perfectly price 26. If a monopolistically competitive firm is making a profit in the
discriminating, what would happen to consumer surplus and short-run, what will happen to the demand and number of firms
deadweight loss? in the long run?

23. Draw and label a price discriminating monopoly making profit. 27. Draw and label monopolistic competition in the long-run.

Label the Label the

quantity QPD price PM

Shade the area Label the

of profit quantity QM

24. The firm above has .. 28. The firm above has neither type of e ciency and creates excess
e ciency since it generates no deadweight loss. .. since QM is less than minimum ATC.
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Topic 4.4- Oligopoly and Game Theory

29. A colluding oligopoly is called a .. .
30. .. theory is the study of strategic interactions among rational decision makers and can be analyzed using
a chart called a .. matrix.
31. What is a dominant strategy? 32. What is a Nash equilibrium?

Answer the questions using the payoff matrix to the right: Assume that two business owners are deciding between advertising now and
advertising later. The chart shows expected profit with Lindsey’s on the left.
33. If David decides to advertise now and Lindsey decides to
David
advertise later, what is David’s expected profit?
Now Later
34. What is Lindsey’s dominant strategy?
Now $6,000 $4,000 $3,000 $4,500
35. What is David’s dominant strategy?
Later $1,000 $1,500 $1,500 $1,300
36. How much profit will David earn at Nash equilibrium?

Assume the advertising company offers a deal that increases the profit for both owners by $2,000, but only if they advertise later. Create a
new payoff matrix based on these changes and complete the following.
David 37. What is Lindsey’s dominant strategy?
Now Later
38. What is David’s dominant strategy?
Now
39. How much profit will David earn at Nash equilibrium?

Later 40. Assume Lindsey and David collude. Which of them would
have an incentive to cheat?

Unit Review
True or False
41. The graph for a firm in monopolistic competition in the short run is the same as a non-price discriminating monopoly.
42. An unregulated monopoly has lower prices and greater quantity than a competitive market.
43. A colluding oligopoly acts as a monopoly and creates deadweight loss.
44. A per unit tax on a non-price discriminating monopoly will decrease deadweight loss.
45. A natural monopoly has economies of scale at the allocatively e cient output.
46. Jacob Clifford has helped me learn and love microeconomics.
47. Identify the characteristics of each market structure.
Perfect Competition Monopolistic Competition Oligopoly Monopoly

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