market structure Flashcards
(27 cards)
difference between a firm and a industry
firm is a organisation that produce goods and services. all producers are considered firms no matter big or what they produce
industry is a group of firms that sells a well-defined product or closely related set of products
what are the characteristics that define a market structure?
- no. of sellers - one firm, many firms, a few big firms
- similarity of products - homogenous (customers are indifferent as to which firm to buy from), differentiated (customers willing to pay different prices for the product)
- barriers to entry and exit - obstacles that make it hard for new firms to enter the industry
the types of barriers to entry/exit
- legal barrier - government licensing, franchise, patents
- natural barrier - economies of scale
what is market structure?
market structure is a classification system for key characteristics of a market
types of profits
- economic profit: total revenue > total cost
- normal profit: total revenue = total cost
- economic loss: total revenue < total cost
charecteristics of perfect compeition
- large number of small firms - no market power to affect market price
- homogenous products - buyers are indifferent as to which product they shld buy from
- no barriers
example of perfect competition
farm product markets, foreign exchange market, stock market
what type of profit can perfect competition earn?
normal profit in long run
what is a price taker?
price taker is when a seller has no control over the price of the product it sells
what determines the price of a price taker?
take price from the industry
how to draw perfect competition demand curve and why?
firms’s demand curve: horizontal line
the price follows industry price and can only sell at one price (D=P=AR=MR)
markets demand and supply curve:
market equilibrium curve
why cant PC firm set a different price from existing market price?
if raise price to $2, will sell zero output -> many other firms selling same product as cheaper $1
if lower price below market price, will reduce revenue
charecteristics of monopolistic competition
most commonly seen
1. large number of relatively small firms
2. differentiated products -> some market power: loyal customers
3. low barriers
what are some non-price competition and why does it happen?
different packaging - make it attractive and apealing
advertising - create distinct positive image
to increase demand and make its demand curve more inelastic
implications for monopolistic competition
make only normal profit in a long run -> there will always be new competitors coming in
how to draw monopolistic competition demand curve?
negatively sloped and flat -> more elastic than monopoly
examples of monopolistic competition
common in real world
eg. shampoo, hotel, food
characteristics of monopoly
- only one firm
- sell unique product
- very strong barriers
implications of monopoly
economic profit over a long run
how to draw the demand curve for monopoly
negatively sloped and steep
(inelastic -> have full control(market power))
examples of monopoly
PUB, singapore post office
a monopolist’s market power is derived from
its size
the fact that it sells a unqiue product
characteristics of oligopoly
- few firms
- homogenous and differentiated products
- strong barrier
what is mutual interdependence?
mutual interdependence is a condition in which a action of one firm may cause a reaction from other firm
