Exam 26: Product Differentiation and Innovation in Markets

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Information advertising might provide information about prices in stores,or it might provide information about product characteristics that consumers might not know about.Which one do you think is more likely to be efficient?

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Question 1

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When the information conveyed is about prices,the advertising makes consumers aware of where products are sold at what prices -- thus increasing competition and decreasing any ability to price above marginal cost.When the information conveyed is about product characteristics,the aim might be to differentiate the product so as to gain some market power.The former is therefore more likely to be efficient,but the latter can be efficiency enhancing as well if the surplus generated by the product characteristics outweighs the deadweight loss from market power being exercised.

In the circle model with constant marginal cost,each point on the circle will contain a firm in equilibrium if fixed entry costs are zero.

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Comment on the following statement: "Since product differentiation allows price competitors to establish some market power,it would be more efficient to not permit product differentiation."

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Question 3

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While it is true that product differentiation softens price competition,it also creates consumer surplus because consumers can consume product characteristics that are closer to their ideal.Eliminating product differentiation may result in more surplus because price is again set to marginal cost,but surplus is also lost as consumers travel further from their ideal in order to consume.

In a monopolistically competitive market with Dixit-Stiglitz preferences,equilibrium price falls as the goods in the differentiated product market become more substitutable.

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Question 4

In a monopolistically competitive equilibrium,firms outside the industry could make at most zero profit by entering the industry.

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Question 5

Bertrand price competitors can recover some market power when they differentiate their products.

(True/False)

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Question 6

In a monopolistically competitive market with Dixit-Stiglitz preferences,the number of firms in the differentiated product market falls as goods in that market become less substitutable.

(True/False)

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Question 7

Under monopolistic competition,the number of firms increases as fixed entry costs fall and as demand for the type of good produced in the market increases.

(True/False)

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Question 8

Describe the tradeoffs involved when thinking about setting the time over which a patent grants an innovator exclusive monopoly rights.

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Question 9

Most firms produce where marginal revenue is equal to marginal cost,but firms in a monopolistically competitive industry instead choose output where average cost is equal to demand.

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Question 10

If price is regulated in a 2-firm oligopoly modeled along the Hotelling line,firms will compete by differentiating their products.

(True/False)

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Question 11

Since firms outside an industry cannot have an incentive to enter the industry in equilibrium,firms inside a monopolistically competitive equilibrium must be making zero profit.

(True/False)

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Question 12

Since firms within a monopolistically competitive industry set output where marginal revenue is equal to marginal cost,the size of the fixed entry cost does not impact the equilibrium price.

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Question 13

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Exam 26: Product Differentiation and Innovation in Markets

Information advertising might provide information about prices in stores,or it might provide information about product characteristics that consumers might not know about.Which one do you think is more likely to be efficient?

In the circle model with constant marginal cost,each point on the circle will contain a firm in equilibrium if fixed entry costs are zero.

Comment on the following statement: "Since product differentiation allows price competitors to establish some market power,it would be more efficient to not permit product differentiation."

In a monopolistically competitive market with Dixit-Stiglitz preferences,equilibrium price falls as the goods in the differentiated product market become more substitutable.

In a monopolistically competitive equilibrium,firms outside the industry could make at most zero profit by entering the industry.

Bertrand price competitors can recover some market power when they differentiate their products.

In a monopolistically competitive market with Dixit-Stiglitz preferences,the number of firms in the differentiated product market falls as goods in that market become less substitutable.

Under monopolistic competition,the number of firms increases as fixed entry costs fall and as demand for the type of good produced in the market increases.

Describe the tradeoffs involved when thinking about setting the time over which a patent grants an innovator exclusive monopoly rights.

Most firms produce where marginal revenue is equal to marginal cost,but firms in a monopolistically competitive industry instead choose output where average cost is equal to demand.

If price is regulated in a 2-firm oligopoly modeled along the Hotelling line,firms will compete by differentiating their products.

Since firms outside an industry cannot have an incentive to enter the industry in equilibrium,firms inside a monopolistically competitive equilibrium must be making zero profit.

Since firms within a monopolistically competitive industry set output where marginal revenue is equal to marginal cost,the size of the fixed entry cost does not impact the equilibrium price.

Introduction

A Consumers Economic Circumstances

Economic Circumstances in Labor and Financial Markets

Tastes and Indifference Curves

Different Types of Tastes

Doing the Best We Can

Income and Substitution Effects in Consumer Goods Markets

Wealth and Substitution Effects in Labor and Capital Markets

Demand for Goods and Supply of Labor and Capital

Consumer Surplus and Deadweight Loss

One Input and One Output: a Short-Run Producer Model

Production With Multiple Inputs

Production Decisions in the Short and Long Run

Competitive Market Equilibrium

The Invisible Hand and the First Welfare Theorem

General Equilibrium

Choice and Markets in the Presence of Risk

Elasticities, Price-Distorting Policies, and Non-Price Rationing

Distortionary Taxes and Subsidies

Prices and Distortions Across Markets

Externalities in Competitive Markets

Asymmetric Information in Competitive Markets

Monopoly

Strategic Thinking and Game Theory

Oligopoly

Public Goods

Governments and Politics

What Is Good Challenges From Psychology and Philosophy

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