2.11c Imperfect Competition Flashcards Preview

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Flashcards in 2.11c Imperfect Competition Deck (12)
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1
Q

The more imperfect a market is… the _____ the market power available to firms

A

The more imperfect a market is, the GREATER the market power available to firms

2
Q

Why do we only draw 1 DIG for monopolies?

A

There is only 1 firm in a monopoly, therefore the firm IS the market
(so no need for a market DIG..)

3
Q

Up until what point will the monopolist keep producing?

A

The monopolist will not produce any output in the price inelastic portion of the demand curve because MR is negative and profits can not be maintained (TR falls).
–> The monopolist will produce output until MR = 0 (where revenues are maximised)

4
Q

Why do monopolist firms only want to make normal profit (NOT abnormal profit) in the SHORT RUN?

A

Because you want to deter firms from entering the market so you set prices lower to prevent them to enter.
(when AC = P)

5
Q

Why might monopolist firms make a loss?

A
  • To raise barriers to entry
  • Predatory pricing in reducing competition
  • Increasing/ growing the market
    OR because the monopolist no longer controls its cost
    –> Costs have increased: energy increased (due to Russia-Ukraine war)
6
Q

In the long run it is rational to believe the monopolist will make _______ profits

A

In the long run it is rational to believe that the monopolist will continue to make abnormal profits

7
Q

Is a monopolist allocatively efficient?

A

Due to the lack of competition, the monopolist is not allocatively efficient

8
Q

Show a monopolistic firm making an “abnormal profit”?

A
9
Q

Show a monopolistic firm making a “normal profit”?

A
10
Q

Show a monopolistic firm making a “loss profit”?

A
11
Q

When does allocative efficiency occur?

A

Allocative efficiency occurs when AR = MC, or where P=MC

A monopolistically competitive firm is NEVER allocatively efficient as their price is greater than MC

12
Q

What is the difference between a monopolist and monopolistic competition DIGs?

A

The elasticity of the demand curve
- monopoly –> demand is price inelastic (as its the only firm)
- monopolistic competition –> demand is more price elastic than a monopoly (as there are more firms)

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