Imperfect competition problems?

Question

1>What are the resource of monopoly power?

2>How can a monopoly exercise control over price? Is this control absolute? Why or why not?

3>Why does an oligopolist have to be concerned about the actions or reactions of its rivals>

4>How does product differentiation give a business firm engaged in monopolistic competition certain degree of control over price?

Thanks very much!

Answer 1

1>Barriers to entry, economic profits, no competition

2>Because the monopoly is the only firm, it can control it's price, but usually doesn't because there's a price and output where it is most profitable. It won't charge an extremely high price because it wouldn't maximize profits.

3>Because competitors will usually follow a price cut, but not a price increase. If one seller charges a higher price, the seller loses almost all the customers. If a seller lowers the price, the other competitors will do the same, and all will see less profit

4>With product differentiation, a business firm can charge a little more for it's product, especially if the product is a little better than the competition. Firms can also generate consumer loyalty through advertising and branding.