Market Structures

Question 1

What is a monopoly structure?

Answer 1

A monopoly is when one company is the only seller of a product or service in a market, giving it control over prices and supply.

Question 2

What are the key characteristics of a monopoly?

Answer 2

1. There is only one firm in the market.
2. Monopolists are price makers.
3. There are high barriers to entry.
4. A monopolist produces using profit maximisation where MC=MR.

Question 3

What is a oligopoly?

Answer 3

An oligopoly is a market structure where a few large firms dominate the market, meaning they have significant influence over prices and production. These firms are interdependent, so the actions of one firm can directly affect the others.

Question 4

What are key characteristics of an oligopoly?

Answer 4

1. Few Large Firms: The market is dominated by a small number of large companies, which means they collectively hold a significant market share.
2. Interdependence: Firms in an oligopoly are interdependent, meaning the decisions of one firm (like changing prices or output) directly impact the others.
3. Barriers to Entry: There are high barriers to entry that prevent new firms from easily entering the market, such as high startup costs or strong brand loyalty.
4. Product Differentiation: Products may be either homogeneous (similar) or differentiated (distinct), allowing firms to compete on factors other than price, like quality or branding.

Question 5

How are externalities created?

Answer 5

Externalities are created when social costs and benefits differ from private costs and benefits.

Question 6

What are the three price mechanisms?

Answer 6

1. Incentive function
2. Rationing function
3. Signalling function

Question 7

What is a revenue maximisation?

Answer 7

Where total revenue is highest and where marginal revenue is equal to zero.

Question 8

What is a monopsony?

Answer 8

Where there is only one buyer in the market.

Question 9

What are the costs and benefits of a monopsony?

Answer 9

1. The monopsonist gains higher profits being able to buy at lower prices, reducing its costs of production.
2. Suppliers are likely to lose out from a monopsony.
3. Lower costs for the monopsonist is likely to be passed on to customers in lower prices.

Question 10

What is monopolistic competition?

Answer 10

A market structure where a large number lf small firms produces non-homogenous products and where there are no barriers to entry or exit.

Question 11

What are the assumptions in a monopolistic competition?

Answer 11

1. There are a large number of buyers and sellers in a market.
2. There are no barriers to entry or exit.
3. Firms are short run profit maximisers.
4. Firms produce differentiated or non-homogenous goods.