Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > 4.1.5 Perfect competition, imperfectly competitive markets and monopoly > Flashcards

4.1.5 Perfect competition, imperfectly competitive markets and monopoly Flashcards

1
Q

What do we assume is the main objective of firms?

A

Profit maximising

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

At what quantity is profit maximised?

A

MC=MR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How is SNP calculated on a monopoly diagram?

A

TR - TC
(Q profit maximisation * P where Q=AR) - (Q pm * P Q=AC)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What other objectives might firms have?

A

Revenue maximising or sales maximising

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

At what quantity is revenue maximised?

A

MR=0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

At what quantity are sales maximised?

A

AC=AR (normal profit made)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the satisficing principle?

A

When firms may accept lower profit to satisfy a broader range of objectives, often considering all stakeholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the principle agent problem?

A

Can managers be trusted to work in favour of corporate objectives that are generally seen through the perspective of the shareholders
Can be resolved by bonuses or giving staff shares of business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How many firms/buyers are in perfect competition?

A

Very many

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the level of barriers to entry/exit in perfect competition?

A

No barriers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What type of product is in perfect competition?

A

Homogenous (interchangeable)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How is information distributed in perfect competition?

A

Buyers/sellers have perfect information

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Describe perfect competition profit

A

SNP in SR
Normal profit in LR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Are firms price makers or takers in perfect competition?

A

Takers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

In what ways are firms in perfect competition efficient?

A

Allocative efficiency
Productively efficiency
X-efficiency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the elasticity of the D/AR curve in perfect competition?

A

Perfectly elastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How many firms are in monopolistic competition?

A

Many

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the level of barriers to entry/exit in monopolistic competition?

A

Low barriers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What type of product is in monopolistic competition?

A

Differentiated products (through limited advertising/ customer service and relations/ different products)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How is information distributed in monopolistic competition?

A

Balanced/equal information between buyers and sellers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Describe monopolistic competition profit

A

Possible SNP in SR
Normal profit in LR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Are firms price makers or takers in monopolistic competition?

A

Takers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

In what ways are firms in monopolistic competition efficient?

A

X-efficient

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the elasticity of the D/AR curve in monopolistic competition?

A

Elastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

How many firms are in an oligopoly?

A

Few/several

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the level of barriers to entry/exit in an oligopoly?

A

High barriers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What type of product is in an oligopoly?

A

Homogenous or differentiated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

How is information distributed in an oligopoly?

A

Asymmetric information, firms have more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Describe profit in an oligopoly.

A

Possible SNP in LR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Are firms price makers in an oligopoly?

A

Takers, can be makers in LR due to high barriers to entry/exit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

In what ways are firms in an oligopoly efficient?

A

Dynamic efficiency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is the elasticity of the D/AR curve in an oligopoly?

A

Kinked demand curve:
Elastic at Q < equilibrium
Inelastic at Q > equilibrium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

How many firms are in a monopoly?

A

One

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What is the level of barriers to entry/exit in a monopoly?

A

Very high i.e. insurmountable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What type of product is in a monopoly?

A

Unique

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

How is information distributed in a monopoly?

A

Asymmetrical, firms have more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Describe profit in a monopoly

A

SNP in LR

38
Q

Are firms price makers or takers in a monopoly?

A

Makers

39
Q

In what ways are firms in a monopoly efficient?

A

Dynamic efficiency

40
Q

What is the elasticity of the D/AR curve in a monopoly?

A

Elastic at Q < equilibrium
Inelastic at Q > equilibrium

41
Q

Examples of perfect competition?

A

Fruit seller, stock market

42
Q

Examples of monopolistic competition?

A

Hairdressers, restaurants/takeaways

43
Q

Examples of an oligopoly?

A

Google, Apple, Samsung, cars, airlines

44
Q

Examples of a monopoly?

A

Severn Trent, National Grid

45
Q

Describe how firms in perfect competition will make normal profit in the SR.

A
  1. Firms produce at Q where MC=MR to maximise profit
  2. Firm makes SNP
  3. Price acts as a single for other firms to join industry
  4. As firms join, supply shifts right
  5. Price decreases until all SNP has been competed away
46
Q

Describe how firms in perfect competition making a loss will reach LR equilibrium.

A
  1. At MC > MR firm makes a loss
  2. Firms leave market until there is no loss (supply shifts left)
  3. When normal profit is reached, market and firm are in LR
  4. Leading to LR equilibrium where MC=AC=AR (and S=D)
47
Q

What about perfect competition benefits society?

A

Firms are productively efficient
Firms are allocatively efficient
Firms are X-efficient - no waste

48
Q

What about perfect competition is negative for society?

A

Not dynamically efficient - no SNP to innovate/ improve production
Less variety and choice

49
Q

Describe how firms in monopolistic competition make normal profit in the LR.

A
  1. In the SR SNP is possible
  2. Price acts as a signal for firms to join industry
  3. Supply increases, price decreases
  4. AR and MR for firms both decrease
  5. So in LR firms make normal profit
50
Q

What are the benefits of monopolistic competition for society?

A

Variety for customers/ better choice
Should be reasonable quality/ good service
X-efficient (no waste)

51
Q

What are the negative of monopolistic competition for society?

A

Quantity produced is below productive efficiency
Quantity produced is below allocatively efficiency
No SNP for investment/innovation - no dynamic efficiency

52
Q

What is the main characteristic of an oligopoly that makes it different to other market structures?

A

There is interdependence between firms - they must consider the actions of other firms when making decisions

53
Q

What are the 2 different characterisations of oligopolies?

A

Competition or collusive

54
Q

What is a competition oligopoly?

A

An oligopoly where the firms produce differentiated products
There is: research and development to drive innovation, branding and advertising, and different target markets

55
Q

What is a collusive oligopoly?

A

An oligopoly where the firms work together to acts as a monopoly by agreeing to restrict output as a cartel so they make SNP

56
Q

What does the kinked demand curve explain?

A

Price stability, so firms must differentiate products

57
Q

What are the benefits of oligopolies for society?

A

There is product differentiation - some variety, higher quality, better technology
SNP can be invested (into above) - dynamic efficiency

58
Q

What are the negatives of oligopolies for society?

A

Not allocatively efficient - underproducing
Not productively efficient - P > MC=AC
Not price competitive - not at lowest cost
X-inefficient - wasteful

59
Q

What is dead weight loss?

A

The loss of efficiency usually though market interventions (e.g. by a monopoly)

60
Q

What are the barriers to entry in a monopoly?

A

Expensive capital cost - e.g. utilities need infrastructure/capital
MES may be very high - big economies of scale
Branding/advertising
Patent/copyright
Ownership of supply chain
Levels of technology
Geographical situation - e.g. next to customers or FoP e.g. raw material

61
Q

What are the barriers to exit in a monopoly?

A

Sunk costs
Contractional obligations

62
Q

What are the benefits of monopolies for society?

A

Profit can be invested into local infrastructure or research and development for innovation/invention
Economies of scale - efficiency and making best use of limited resource - decreased AC
Dynamic efficiency - they have funding to keep ahead of competition in product and production (may be barrier to entry)
National level monopolies can compete with other big companies and provide jobs/ tax revenue
Cross subsidisation - they can use profit from one part of the business to support non-profitable parts of the business, extending service

63
Q

What are the negatives of monopolies for society?

A

Typically not productively efficient
Quantity produced is less than allocative efficiency
X-inefficient - SNP is assured so they may not operate at lowest AC
Less choice/variety for consumers
Possible diseconomies of scale
May abuse excessive market/political power
Higher price is bad for consumer

64
Q

What are the evaluation points for monopolies?

A

Nature of industry i.e. if it is a natural monopoly
If there is any government control - regulation, price gaps
Corporate objectives - are they profit maximised or satisficing
Is it a necessity or luxury - necessities need more control
Level of research and development and technology improvement
If they export
Is it nationalised - if so it should help society
Who owns the monopoly - motives if foreign owned

65
Q

What is allocative efficiency?

A

The quantity where demand = supply, balancing cost and utility

66
Q

What is productive efficiency?

A

The lowest price of production cost

67
Q

What is dynamic efficiency?

A

Firms making SNP use it to improve product and production
Acts as barrier to entry

68
Q

What is X-inefficiency?

A

Monopolies/oligopolies may be wasteful/lazy and produce at price greater than productive efficiency due to a lack of competition

69
Q

What is price discrimination?

A

When a firm charges different customers different prices for the same product

70
Q

What is the purpose of price discrimination?

A

To take as much of the consumer surplus as possible

71
Q

What are the 3 conditions needed for a firm to price discriminate profitably?

A
  1. Seller must have monopoly power
  2. Resale by customers must not be possible
  3. The market must be separable into customer groups with different PEDs
72
Q

What is an example of 3rd degree price discrimination?

A

Train tickets are separated into child and adult tickets, with child tickets being more elastic and adult tickets being more inelastic, as adults may need train tickets at short notice due to business meetings etc.

73
Q

What are the benefits of price discrimination?

A

Cheaper prices may be available for those with less money
Cross-subsidising is possible, making the product more accessible

74
Q

What is contestability?

A

The extent to which firms are believed to be able to enter a market making incumbent firms reduce price as a deterrent to entrants

75
Q

What is market structure decided by?

A

Barriers to entry and exit

76
Q

What are examples of barriers to entry?

A
  • High startup costs (expensive infrastructure/capital)
  • R+D cost
  • Level of technology needed
  • Level of information
  • Patents/copyright/IPR/license
  • Resource/supply chain ownership
  • Brand name/image
  • Access to market
  • Economies of scale (MES for natural monopolies)
77
Q

What are examples of barriers to exit?

A
  • Sunk costs
  • Contractual obligations to workers/suppliers/customers/government
78
Q

What are sunk costs?

A

Money that has already been spent and cannot be recovered

79
Q

Why is perception of barriers important in determining contestability?

A

It makes firms try to prevent other firms from entering a market/industry (rent-seeking behaviour)

80
Q

What are the 2 methods firms can use to prevent other firms from joining their industry?

A
  1. Increasing barriers to entry - eg buy potential competitors
  2. Produce at Q > MR=MC to lower profit - firms will increase Q to Q where AC=AR (sales maximising), removing SNP, deterring entry as it stops a high price acting as a signal for firms to join industry, preventing ‘hit and run’ entry to industry
81
Q

What is hit and run competition?

A

When firms enter and exit a market quickly, selling their product for a short period of time and then leaving, making SNP in the SR

82
Q

What is the impact of contestability on policy making?

A

There is less need for strict regulation if a market is contestable, so there is no need for: restricting mergers, worrying about licensing, breaking up big corporations, controlling prices

83
Q

What are the short run benefits which are likely to result from competition?

A

Firms may get super normal profit in the short run, so dynamic efficiency is possible

84
Q

What are the long run benefits which are likely to result from competition?

A

Production at lowest price at productive efficiency (MC=AC) (lowest ATC)
Production of quantity at allocative efficiency (MC=AR) which balances limited resource and unlimited wants, solving the economic problem
X-efficiency - no waste of resource

85
Q

Why may firms compete in non-price competition or have product differentiation?

A

To improve products, reduce costs and improve the quality of the service provided

86
Q

What are examples of product differentiation?

A

Branding, promotion, customer and after sales service, improved technology, better design, high quality packaging, exclusivity, loyalty schemes, online marketing, increased product availability

87
Q

What are examples of anti-competitive behaviour?

A

Buying up the supply chain, increasing barriers to entry, mergers and takeovers (buying competitors)

88
Q

What is the process of creative destruction also known as?

A

Rent-seeking behaviour

89
Q

What is the process of creative destruction?

A

As new ideas occur, old industries and technology becomes obsolete and firms/workers in the industry lose out or become structurally unemployed and new production and products become dominant

90
Q

What is economic welfare?

A

The total benefit society receives from an economic transaction
The total areas of the consumer and producer surplus

Economics (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions