曼昆经济学原理英文版文案加习题答案15章.docx

曼昆经济学原理英文版文案加习题答案15章.docx

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曼昆经济学原理英文版文案加习题答案15章

sticCompetition

WHAT’SNEWINTHESEVENTHEDITION:

Therearenomajorchangestothischapter.

LEARNINGOBJECTIVES:

Bytheendofthischapter,studentsshouldunderstand:

whatmarketstructuresliebetweenmonopolyandcompetition.

competitionamongfirmsthatselldifferentiatedproducts.

howtheoutcomesundermonopolisticcompetitionandunderperfectcompetitioncompare.

thedesirabilityofoutcomesinmonopolisticallycompetitivemarkets.

thedebateovertheeffectsofadvertising.

thedebateovertheroleofbrandnames.

CONTEXTANDPURPOSE:

Chapter16isthefourthchapterinafive-chaptersequencedealingwithfirmbehaviorandtheorganizationofindustry.Theprevioustwochaptersdevelopedthetwoextremeformsofmarketstructure—competitionandmonopoly.Themarketstructurethatliesbetweencompetitionandmonopolyisknownasimperfectcompetition.Therearetwotypesofimperfectcompetition—monopolisticcompetitionandoligopoly.Thischapteraddressesmonopolisticcompetitionwhilethefinalchapterinthesequenceaddressesoligopoly.TheanalysisinthischapterisagainbasedonthecostcurvesdevelopedinChapter13.

ThepurposeofChapter16istoaddressmonopolisticcompetition—amarketstructureinwhichmanyfirmssellproductsthataresimilarbutnotidentical.Monopolisticcompetitiondiffersfromperfectcompetitionbecauseeachofthemanysellersoffersasomewhatdifferentproduct.Asaresult,monopolisticallycompetitivefirmsfaceadownward-slopingdemandcurvewhilecompetitivefirmsfaceahorizontaldemandcurveatthemarketprice.Monopolisticcompetitionisextremelycommon.

KEYPOINTS:

Amonopolisticallycompetitivemarketischaracterizedbythreeattributes:

manyfirms,differentiatedproducts,andfreeentry.

Thelong-runequilibriuminamonopolisticallycompetitivemarketdiffersfromthatinaperfectlycompetitivemarketintworelatedways.First,eachfirminamonopolisticallycompetitivemarkethasexcesscapacity.Thatis,itchoosesaquantitythatputsitonthedownward-slopingportionoftheaverage-total-costcurve.Second,eachfirmchargesapriceabovemarginalcost.

Monopolisticcompetitiondoesnothaveallofthedesirablepropertiesofperfectcompetition.Thereisthestandarddeadweightlossofmonopolycausedbythemarkupofpriceovermarginalcost.Inaddition,thenumberoffirms（andthusthevarietyofproducts）canbetoolargeortoosmall.Inpractice,theabilityofpolicymakerstocorrecttheseinefficienciesislimited.

Theproductdifferentiationinherentinmonopolisticcompetitionleadstotheuseofadvertisingandbrandnames.Criticsofadvertisingandbrandnamesarguethatfirmsusethemtomanipulateconsumers’tastesandtoreducecompetition.Defendersofadvertisingandbrandnamesarguethatfirmsusethemtoinformconsumersandtocompetemorevigorouslyonpriceandproductquality.

CHAPTEROUTLINE:

I.BetweenMonopolyandPerfectCompetition

A.Thetypicalfirmhassomemarketpower,butitsmarketpowerisnotasgreatasthatdescribedbymonopoly.

B.Firmsinimperfectcompetitionliesomewherebetweenthecompetitivemodelandthemonopolymodel.

C.Definitionofoligopoly:

amarketstructureinwhichonlyafewsellersoffersimilaroridenticalproducts.

1.Economistsmeasureamarket’sdominationbyasmallnumberoffirmswithastatisticcalledaconcentrationratio.

2.Theconcentrationratioisthepercentageoftotaloutputinthemarketsuppliedbythefourlargestfirms.

3.Inthe.economy,mostindustrieshaveafour-firmconcentrationratiounder50%.

D.Definitionofmonopolisticcompetition:

amarketstructureinwhichmanyfirmssellproductsthataresimilarbutnotidentical.

1.CharacteristicsofMonopolisticCompetition

a.ManySellers

b.ProductDifferentiation

c.FreeEntry

Figure1

E.Figure1summarizesthefourtypesofmarketstructure.Notethatitisthenumberoffirmsandthetypeofproductsoldthatdistinguishesonemarketstructurefromanother.

Drawatablewiththefourtypesofmarketsacrossthetop.Createrowsforvariousmarketcharacteristicssuchastypeofproductsold,numberoffirms,controloverprice,freedomofentryandexit,andabilitytoearnprofitinthelongrun.Studentswillthenbeabletoseehowthesecharacteristicsrelatetooneanother.

Activity1—ThinkofaFirm

Type:

In-classassignment

Topics:

Marketstructure

Materialsneeded:

None

Time:

15minutes

Classlimitations:

Worksinanysizeclass

Purpose

Thisassignmenthelpsstudentsrelatetheconceptofmarketstructuretotherealworld.

Instructions

Asktheclasstoanswerthefollowingquestions.Aftertheyhaveansweredallofthem,askthestudentstosharetheiranswerswithaneighbor.Asktheneighboringstudenttoevaluatetheanswertothelastquestion.Listthefourmarketstructuresontheboardandaskforexamplesthatfiteachcategory

1.Writethenameofaspecificfirm.Itshouldbearealcompany,nothypothetical.

2.Whatproductsorservicesdoesthisfirmsell?

Ifthefirmsellsawidevarietyofgoods,chooseasingleitemtoanswerthefollowingquestions.

3.Whatotherfirmscompetewiththiscompany?

Aretheremanycompetitors,onlyafew,ornone?

4.Dothecompetingfirmssellexactlythesameproductordoeseachcompanyproducegoodswithspecialcharacteristics?

5.Categorizetheindustryasoneofthefollowingmarketstructures:

a.Perfectcompetition

—manyfirms

—identicalproducts

b.Monopoly

—onefirm

—uniqueproduct

c.Oligopoly

—afewfirms

—standardordifferentiatedproduct

d.Monopolisticcompetition

—manyfirms

—differentiatedproducts

CommonAnswersandPointsforDiscussion

Manystudentswillchoosecompaniesthatproduceconsumergoods,whereproductdifferentiationisthemostimportantcharacteristic.Mostoftheseindustriesareeitheroligopoliesormonopolisticallycompetitive.Afewstudentsmayhaveexamplesofmonopoly,particularlyutilitiesorpatentedmedicines.Almostnoonewillgiveanexampleofperfectcompetition.

Perfectcompetition,whileaneconomicideal,doesnotaccuratelydescribeallsectorsoftheeconomy.Explainingthatperfectcompetitionisaspecialcase（andaddingsomeexamplesofcompetitiveindustries）willhelpstudentsunderstandwhycompetitivefirmsfaceahorizontaldemandcurveandhavenocontroloverthepricesoftheirproducts.

Somestudentsmayhavequestionsaboutthedifferencesbetweenoligopolyandmonopolisticcompetition.Differentiatingbetweena“few”and“many”isnotalwayseasy.Measuresofmarketconcentrationcanbeusedtoexplainthedifferencebetweenthesetwoimperfectlycompetitivemarketstructures.

II.CompetitionwithDifferentiatedProducts

A.TheMonopolisticallyCompetitiveFirmintheShortRun

1.Eachfirminmonopolisticcompetitionfacesadownward-slopingdemandcurvebecauseitsproductisdifferentfromthoseofferedbyotherfirms.

2.Themonopolisticallycompetitivefirmfollowsamonopolist'sruleformaximizingprofit.

Explaintostudentsthatproductdifferentiationgivesthesellerinamonopolisticallycompetitivemarketsomeabilitytocontrolthepriceofitsproduct.Inasense,eachfirmisamonopolyintheproductionofitsparticularversionoftheproduct.Thisisreflectedbythefactthatthesefirmsfaceadownward-slopingdemandcurve.Pointoutthatthegraphlookssomethinglikeamonopoly,butthatthedemandthefirmfaceswilllikelybemuchflatter（becauseitwillbemoreelastic）.

a.Itchoosestheoutputlevelwheremarginalrevenueisequaltomarginalcost.

b.Itsetsthepriceusingthedemandcurvetoensurethatconsumerswilldemandexactlytheamountproduced.

Figure2

3.Wecandeterminewhetherornotthemonopolisticallycompetitivefirmisearningaprofitorlossbycomparingpriceandaveragetotalcost.

a.IfP>ATC,thefirmisearningaprofit.

b.IfP

c.IfP=ATC,thefirmisearningzeroeconomicprofit.

B.TheLong-RunEquilibrium

1.Whenfirmsinmonopolisticcompetitionaremakingprofit,newfirmshaveanincentivetoenterthemarket.

a.Thisincreasesthenumberofproductsfromwhichconsumerscanchoose.

b.Thus,thedemandcurvefacedbyeachfirmshiftstotheleft.

c.Asthedemandfalls,thesefirmsexperiencedecliningprofit.

2.Whenfirmsinmonopolisticcompetitionareincurringlosses,firmsinthemarketwillhaveanincentivetoexit.

a.Consumerswillhavefewerproductsfromwhichtochoose.

b.Thus,thedemandcurveforeachfirmshiftstotheright.

c.Thelossesoftheremainingfirmswillfall.

3.Theprocessofexitandentrycontinuesuntilthefirmsinthemarketareearningzeroprofit.

a.Thismeansthatthedemandcurveandtheaverage-total-costcurvearetangenttoeachother.

b.Atthispoint,priceisequaltoaveragetotalcostandthefirmisearningzeroeconomicprofit.

Figure3

Rememberthatstudentshaveahardtimeunderstandingwhyafirmwillcontinuetooperateifitisearning“only”zeroeconomicprofit.Remindthemthatzeroeconomicprofitmeansthatfirmsareearninganaccountingprofitequaltotheirimplicitcosts.

Pointouttostudentsthat,justlikefirmsinperfectcompetition,firmsinmonopolisticcompetitionalsoearnzeroeconomicprofitinthelongrun.Showthemthatthisresultoccursbecausefirmscanfreelyenterthemarketwhenprofitsoccur,drivingthelevelofprofitstozero.Anymarketwithnobarrierstoentrywillseezeroeconomicprofitinthelongrun.

4.Therearetwocharacteristicsthatdescribethelong-runequilibriuminamonopolisticallycompetitivemarket.

a.Priceexceedsmarginalcost（duetothefactthate