Market Structures Flashcards
(20 cards)
Factors that Determine Market Structure
Number of firms Product Differentiation Ease of entry Extent to which knowledge is perfect Influence of firms on price
Define barrier to entry
Obstacles that make it difficult for a new firm to enter a market
Define Sunk costs
Costs that have already been incurred and cannot be recovered
Define Minimum Efficient Scale
MES: Lowest quantity of output at which productive efficiency occurs
Define Returns to scale
The quantitative change in the output of a firm or industry resulting from a proportionate increase in all inputs.
Explain the Divorce of ownership and control
The owners and those who manage the firm are different groups with different objectives
List the features of a perfectly competitive market
Many small firms Homogenous Goods All firms are price takers Perfect Knowledge Freedom of Entry and Exit Large numbers of buyers Factors of production are completely mobile
Where is quantity for short-run profit maximisation?
Q is where MC=MR
Define Normal Profit
The minimum profit that a firm must make to stay in business. This is insufficient to attract new firms into the market
Define supernormal profit
Profit above normal profit, neccesary for investment
Define Allocative efficiency and where price must be to occur
Occurs when it is impossible to improve the overall economic welfare by reallocating resources between markets, price must equal marginal cost for this
Define Dynamic efficiency
Efficiency over time, innovation, R and D, etc.
List the features of a monopoly
Only one firm
Complete barriers to entry and exit
Firm is a price maker
We assumer monopolist is a short-run profit maximiser
Why are monopolists productively inefficient
They have no incentive as supernormal profits would not be maximised at the lowest average costs
Advantages of a monopoly
Means for dynamic efficiency
Natural Monopolies
Internationally competitive
Disadvantages of a monopoly
Allocative inefficiency Productively inefficient Prices rise Underconsumed Deadweight loss
Define deadweight loss
A loss of welfare arising from a misallocation of resources
List the features of a natural monopoly
There is only room for one firm to fully exploit the economies of scale available
The firm never fully exploits the economies of scale
Define price discrimination
Charging different prices to different customers for the same product or service, with the prices based on the willingness to pay
List the Conditions necessary for price discrimination
Easy to identify different groups of customers
Different customers must have different price elasticities of demand
Must be able to prevent resale
Needs to be a price maker
