perfect competition
🏪MICROECONOMICS STUDY GUIDE
Competition, Monopoly, and Oligopoly
Compare price taking, market power, entry barriers, product differentiation, and strategic rivalry.
8 key ideas8 flashcards5 practice questions
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Count rivals, entry barriers, and product differences.
monopolistic competition
oligopoly or monopoly
Key ideas to know
Start with the relationships between ideas. Then close the notes and explain each one from memory.
- 01
Perfect competition has many sellers, a standardized product, and low entry barriers.
- 02
A competitive firm takes market price and faces horizontal demand at that price.
- 03
A monopoly has one seller protected by barriers to entry.
- 04
A monopolist faces market demand, so marginal revenue lies below price for positive output.
- 05
Monopolistic competition combines many sellers with differentiated products and relatively open entry.
- 06
Oligopoly contains a small number of mutually dependent firms.
- 07
Game theory studies decisions whose payoffs depend on rivals' actions.
- 08
Market power can reduce output below the competitive amount and produce deadweight loss.
PART OF THE MICROECONOMICS GUIDE
See every set in this course and follow a focused review order.
Open the full Microeconomics guide →Two ideas worth correcting now
NOT QUITE
→A monopoly has no constraints
USE THIS INSTEAD
Demand, costs, regulation, and possible entry still constrain decisions.
NOT QUITE
→Every large firm is a monopoly
USE THIS INSTEAD
Market definition and available substitutes determine market power.
Flashcards
Answer before opening each card. The effort to retrieve is part of the learning.
1What does a price-taking firm control?Show answer ＋
Its output, not the market price.
2Why is monopoly MR below price?Show answer ＋
Selling another unit usually requires a lower price that also applies to earlier units.
3What is a barrier to entry?Show answer ＋
A condition that makes entry hard or costly.
4What marks monopolistic competition?Show answer ＋
Many sellers with differentiated products.
5What marks oligopoly?Show answer ＋
A few firms whose decisions affect one another.
6What is a Nash equilibrium?Show answer ＋
A set of strategies where no player gains by switching alone.
7What is deadweight loss?Show answer ＋
Lost total surplus from trades that do not occur.
8Can a monopoly charge any price?Show answer ＋
No. Demand limits the quantity sold at each price.
Explain it in your own words
Use the answer as a check after you have written or spoken your response.
01How does a competitive firm select output?
It compares market price, which equals marginal revenue, with marginal cost.
02Why can monopoly earn profit over a long period?
Entry barriers can prevent rivals from eroding profit.
03Why does a cartel face internal tension?
The group gains from restricted output, while each member may gain by secretly selling more.
04How does product differentiation affect demand for one firm?
It gives the firm a downward-sloping demand curve rather than perfectly elastic demand.
05Why does monopoly create deadweight loss?
Output stops where MR equals MC, below the amount where buyer willingness to pay equals marginal cost.
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