Micro Economics
Exam #2
Summer I 2017
Quincy College
2 points per question
1. Provide a definition for the term Market power and provide an example.
The ability to alter the market price of a good or service. Standard Oil had
substantial market power and used that power to undercut their competitor’s
prices.
2. Identify the three characteristics of a monopoly? Provide a company that you feel has
monopolistic characteristics.
1. There hs to be a total barrier to entry
2. There can be no close substitutes for the monopolies product
3. There is no competitive pressure
The NFL is a monopoly and Google has monopolistic characteristics
3. Identify the pros and cons of having market power.
Pros
● High profits
● Large companies can produce more efficiently
Cons
● No profit squeeze, so no pressure to reduce costs or improve quality
● No production change, so price does not fall
● Since there is no competition, monopolies have little incentive to improve
the product.
4.Identify the determinants of market power:
1. Number of producers
2. Size of firms
3. Barriers to entry
4. Availability of substitutes
5.Do anti-trust laws / enforcement really work in the United States? Who enforces anti-trust
laws? Identify the main goal of antitrust laws.
1. Most anti-trust laws in the US are 100 years old and include language such as:
“We don’t want substantial lessening of competition,” or, “We don’t want
contracts and conspiracies that restrain trade.” The vagueness of these laws can
make enforcing the laws difficult. However, there have been some marked
successes in recently decades against such companies as Microsoft regarding
PCs and Apple conspiring with book publishers to fix ebook pricing.
2. The Department of Justice enforces anti-trust laws
3. To make sure that other companies aren’t driving out their competitors out of the
market
6. Compare and contrast the elasticity laws of Necessities vs. luxuries.
● Necessity Good: people will always buy, even when the price increases.
● Luxury Good: consumers can easily reduce the quantity they consume.
● Necessities have an inelastic demand and luxuries have an elastic demand.
7. Describe the term product differentiation? Provide an example.
A business level strategy intended to increase the perceived value of the firm’s
products relative to competitor’s products and create a customer preference for
