3.4 Market structures Flashcards
(54 cards)
3.4.1 A)
Allocative effciency
When rescourses allocated in a way which maximises consumer satification / welfare P/AC = MC
Form can achieve AE when they have correct info about consumers
when the value to society from consumption is equal to the marginal cost of production
3.4.1 B)
Productive efficiency
When a firm produces at the lowest point of AC curve
This is where Economies of scale are fully explioted anymore and diseconomies will be experienced.
Able to change output through mergers, demegers and expansion.
3.4.1 C)
Dynamic efficiency
When resources are allocated efficenley over time. Its linked to investment which brings new production techniques and products over time.
alternative is static effcicnecy which looks at a set point in time. Ex: Allocative and productive effciency.
Dynamic efficiency will be achieved in markets where competition encourages innovation need profit incentive.
3.4.1 D)
X-inefficiency
If a firm fails to minimise its average costs at a given level of output, it is X-inefficient and there is organisational slack.
they are X-inefficient since they are not producing on the lowest AC curve. It often occurs where there is a lack of competition so firms have little incentive to cut costs.
3.4.2 )
What is perfect competitve market
Where there is a high degree of competiion. however doesnnt max welfare of productive ideal results.
3.4.2 A)
Char of perfect comp
- DD for firms good is perfectly elastic. firms are price takers
- there must be many buyers and selles no 1 or customer can influence market
-must be freedom of entry and exit from the industry important means that when a busniess is making profit anyone can enter that market and produce themselves.
-must be perfect knowledge enables firms to know when other firm are making profit to attract them into marker - product must be homogenous (idenitcal) so its impossible to tell diff between one another making qual not a diff in price
3.4.2 B)
Profit max in SR LR
In SR profit max possible MC=MR possible to make NP SNP and Loss. However in LR can only make NP
3.4.2 C)
Diagrammatic analysis
Redbook
3.4.2 )
Efficency
perfect comp is productive eff since MC=AC also allocative eff p=mc static eff
not dynamic no signle forms has enought for R&D small firms struggle to revice fiance. Perfect info means one firms investment gives no indivdiual benifit. leads to govt to do it.
3.4.3 A)
What is monopolistic competition
Its a form of imnperfect comp in between perf comp and monopoly
3.4.3 A)
What are the char of monopolistic comp
1) Large # of buyers and seller in a market, this mean that no one buyer or seller has price setting power
2) No barrier to entry or exit firms join at profit and leave as loss. meaning in the LR only normal profit possible.
3)These firms produce non-homogenous/ highly differential goods/servies. this mean a firm has some price setting power.
3.4.3 B)
How does the short run differ from long run in monopolisict comp
in the short run it is possible to make snp/np/snl. However in the LR its only possible to make NP.
3.4.3 B)
Why do firms only make normal profit in the long run in monopolisict comp
Firm’s are pm so produce at mc=mr allow for snp in the sr. However. due to no barrier to entry new firms will enter the market causes D/AR for an individual firm to reduce. shifting inwards to make normal profit. Loss is the opposite. Graph in redbook.
3.4.3 B)
what is the limitation of the idea that in LR only NP
may be imperfect info leading to firms not entering the market, firms may be diff sizes allowing to maintain snp.
3.4.3 B)
efficency of mc
Only np and they profit max, not alloactive or productive, likly to be dynamic.
3.4.4 A)
What is oligoply
is where few firms dominate the market and have majority of market share.
3.4.4 A)
Char of oligoply
o high barriers to entry and exit
o high concentration ratio
o interdependence of firms
o product differentiation
3.4.4 B)
Calc for n-firm conc
(total sales for n firms / total sales in industy ) * 100
3.4.4 C)
What is collusion
Is a collective agreement that reduces comp
3.4.4 C)
properties of collusion
Firms lowers prices, other will also so working together allows for maxising profit.
collusion is illegal
works best when few firms similar products
3.4.4 D)
What is overt collusion
there is a formal agreement
3.4.4 D)
What is tactic collusion
Not a formal agreement is called a cartel , could agree a price and allow non price comp to decide market share or agree to divide up market share based on present ms
3.4.4 E)
What is price leadership
Where one firm has adv over others due to size or costs, leads to other firms following. Domiate firms normally decice the prices
3.4.4 E)
How can behavior of non collusive firms be represented
game theory
