EC314: Managerial Economics
Chapters 12 and 13 Essay Test
This test is worth 60 points total. Be sure to answer each question clearly and concisely!
Avoid answering questions that weren’t asked.
Before attempting this test, make sure that you have studied a) Chapters 12 & 13 from the
textbook, b) the instructor’s comments on Chapters 12 & 13, c) the Chapter Readings for
Chapters 12 & 13, and the Chapter Perspectives for Chapters 12 & 13.
Chapter 11: Firm Strategy Under Imperfectly Competitive Conditions
A. Briefly explain what the two new market structures introduced in this chapter –
monopolistic competition and oligopoly – add to our analysis that wasn’t there before
(in other words, why bother with them?) (6 points)
There are 4 basic types of market structures like perfect competition, imperfect
competition, oligopoly, and a monopoly. Perfect competition describes a market
structure, where a large number of small firms compete against each other with
homogenous products. Monopolistic competition refers to a market structure where a
number of small firms compete against each other with different products. An
oligopoly describes a market structure where a small number of firms compete
against each other. Monopoly refers to a market structure where a single firm
controls the entire market. We need to bother monopolistic competition because due
to differentiated products, chances are companies may charge more to consumers.
In order to differentiate their products from other companies add irrelevant features
and do not concentrate on improving the basic product. In oligopoly it is difficult to
pick a spot. Extremely large and advanced companies control the market, making it
