CHAPTER25: MONOPOLISTIC COMPETION AND
OLIGOPOLY
Q1 .Compare the elasticity of the monopolistic competitor’s demand with that of a pure
competitive and pure monopolists. Contrast the two market structures in terms of
productive and alloctive efficiency. Explain “Monopolistically competitive industries are
characterized by too many firms, each of which produces too little.”
Q2.Answer the following questions which to relate to measures of concentration:
1. What is the meaning of affirm concentration ratio of 60pecent? 90 percent? What
are the shortcomings of concentration ratios as measures of monopoly power?
2. Suppose that the firms in industry A have annual sales of 30, 30, 20, 10, and 10
percent of total industry sales. For the five firms in industry B the figures are 60,
25, 5, 5, and 5 percent. Calculate the Herfindahl index for each industry and
compare their likely competitiveness.
Q3.Explain the general meaning of the following profit payoff matrix for oligopolists C
and D. All profit figures are in thousands.
1. Use the payoff matrix to explain the mutual interdependence that characterizes
oligopolistic industries.
2. Assuming no collusion between C and D, what is likely pricing outcome?
3. In view of your answer in 8b, explain why price collusion is mutually profitable.
Why might there be a temptation to cheat on the collusive agreement?
Q4. What assumption about a rival’s response to price changes underlie the kinked-
demand curve for oligoplists? Why is there a gap in the oligopolist’s marginal-revenue
$57
$60
$55
$59
$50
$69
$55
$58
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