Market Structures

Question 1

Predatory Pricing

Answer 1

Setting the price level below costs to drive out the competition.

Question 2

Limit Pricing

Answer 2

Setting the price at a low enough level to discourage new entrants into the market.

Question 3

Non-price Competition

Answer 3

This can include:
-Marketing
-Packaging
-Loyalty bonuses

Question 4

Concentration Ratio

Answer 4

The market share controlled by the ‘n’ largest firms.

Question 5

Perfect Competition

Answer 5

Characteristics:
-Many small firms
-Homogeneous Products
-Perfect knowledge
-No barriers to entry/exit
-Price taker

Question 6

Monopolistic Competition

Answer 6

Characteristics:
-Many small firms
-Similar products (slight difference)
-Imperfect knowledge
-low barriers to entry/exit
-Slight local price setting power

Question 7

Oligopoly

Answer 7

Characteristics:
- A few large firms
-Distinct product characteristics
-Imperfect knowledge
-High barriers to entry/exit
-Significant price setting powers

Question 8

Monopoly

Answer 8

Characteristics:
-One dominating firm
-Unique product
-Imperfect knowledge
-High barriers to entry/exit
-Price maker

Question 9

Overt and Tacit Collusion

Answer 9

Overt collusion is where firms openly fix prices or any other variable.

Tacit collusion is where firms cooperate to fix prices without a
spoken agreement.

Question 10

Productive Efficiency

Answer 10

This occurs at the lowest cost per unit of output (minimizing costs).

MC=AC

Question 11

Allocative Efficiency

Answer 11

Costs of production and the demands of the consumer are taken into account so that the price of making the unit is equal to the cost.

P=MC

Question 12

Dynamic Efficiency

Answer 12

This is how technological changes over time will increase the productive potential of a firm.

Question 13

X-inefficiency

Answer 13

This occurs when a firm operates above its AC curve, meaning costs aren’t as low as they could be.