Market Structure

Question 1

Long run

Answer 1

Time period when all factors of production can be changed

Question 2

Fixed costs

Answer 2

Costs that are independent of output produced eg rent and loans

Question 3

Variable costs

Answer 3

Costs that are directly related to the level of output produced eg labour electricity raw materials

Question 4

Average cost

Answer 4

The unit cost of production
Variable+fixed/
Output

Question 5

Marginal cost

Answer 5

The change in total cost when one more unit of output is produced

Question 6

Economy of scale

Answer 6

Reduction in the LONG RUN AVERAGE COSTS resulting from increases in the scale of production

Question 7

Diseconomies of scale

Answer 7

Increase in the LONG RUN AVERAGE COSTS caused by increases in the scale of production

Question 8

Minimum efficient scale

Answer 8

The lowest level of output at which full advantage can be taken of economics of scale

Question 9

External economics of scale

Answer 9

Economies of scale resulting from the growth of an industry that decrease LRAC of firms within the industry.

Question 10

Average revenue

Answer 10

Total revenue divided by quantity sold

Question 11

Marginal revenue

Answer 11

Addition to total revenue from one additional sale

Question 12

Predatory pricing

Answer 12

Setting price low with the aim of forcing rivals out of the market

Question 13

Superior good

Answer 13

A good with positive income elasticity of demand greater than one

Question 14

Barriers to entry

Answer 14

Obstacle to new firms entering the market

Question 15

Barriers to exit

Answer 15

Obstacle to fiend leaving a market

Question 16

Sunk costs

Answer 16

Costs incurred by s firm that it cannot recover should it leave the market

Question 17

Natural monopoly

Answer 17

A market where long run average costs are lowest when output us produced by one firm

Question 18

Legal monopoly

Answer 18

A market where a firm has a share of 25% or more

Question 19

Dominant monopoly

Answer 19

A market where a firm has a 40% or more share

Question 20

Profit maximisation

Answer 20

Achieving the highest possible profit where marginal cost equals marginal revenue

Question 21

Supernormal profit

Answer 21

Profit earned where average revenue exceeds average cost

Question 22

Normal profit

Answer 22

The level of profit needed to keep a firm in the market in the long run

Question 23

Oligopoly

Answer 23

A market structure dominated by a few large firms.

INTERDEPENDENCE

Question 24

Cartel

Answer 24

A group of firms that produce separately but sell at one agreed price

Question 25

Game theory

Answer 25

A theory of how decision makers are influenced by the actions and reactions of others

Question 26

Monopolistic competition

Answer 26

A market structure on which there is a large number of small firms selling a similar product

Question 27

Incumbent firms

Answer 27

Existing firms

Question 28

Dynamic efficiency

Answer 28

Efficiency in terms of developing and introducing new production techniques and new products eg. Apple

Question 29

X inefficiency

Answer 29

Difference between actual costs and attainable costs

Question 30

Contestable market

Answer 30

A market in which there are no barriers to entry and exit and the costs facing incumbent and new firms are often equal

Question 31

Hit and run competition

Answer 31

Firms quickly entering a market where there are supernormal profits and leaving it when the profits disappear

Question 32

Profit maximisation

Answer 32

Achieving the highest possible profit where marginal cost equals marginal revenue eg Starbucks

Question 33

Sales revenue maximisation

Answer 33

The objective of achieving as high a total revenue as possible eg Amazon

Question 34

Profit satisfying

Answer 34

Where a firm makes a reasonable level of profit that satisfies it's stakeholders without maximising eg water stones

Question 35

Utility maximisation

Answer 35

The aim of trying to achieve as much satisfaction as possible eg Scunthorpe fc

Question 36

Short run

Answer 36

Time period when a firm is unable to change factors of production except for one, usually labour