market structures, efficiency Flashcards
(22 cards)
What is normal profit?
The minimum amount of profit required for the entrepreneur to stay in the firm, and to stop them from transferring elsewhere.
What does allocatively efficient mean?
P=mc; consumer and producer surplus is maximised.
What is productive efficiency?
Mc=ac; production occurs at the lowest AC; full employment of resources.
What is dynamic efficiency?
Intertemporal - happens over time; firm responds to changing demand of consumers; reinvest profits.
What is X efficiency?
Firm is producing on the lowest attainable AC curve.
What is the short run shutdown point?
P is below AVC; firms are paying more to produce than they are receiving in return.
What is the long run shutdown point?
P is below AC; variable costs are covered and fixed costs are likely paid forwards.
What are the assumptions of a monopoly?
Perfect information; many buyers; high barriers to entry and exit.
What is a natural monopoly?
When it is more efficient to only have 1 firm in the industry.
Why are monopolies considered good?
Economies of scale; economies of scope; R&D innovation; natural monopolies are allocatively efficient.
What is price discrimination?
Charging different prices to different subgroups of consumers for the same product.
What conditions need to hold for price discrimination to be successful?
Identifiable subgroups of consumers; subgroups must have different PEDs; no arbitrage; increased revenue has to be greater than increased costs.
What is monopolistic competition?
Each firm will have a de facto monopoly over its good in a product range.
What are the assumptions of monopolistic competition?
Many buyers and sellers; no barriers to entry or exit; non-homogenous/heterogenous goods and services.
What are the characteristics of an oligopoly?
Many buyers; good that is perceived to be heterogenous; firms are interdependent.
What is a kinked demand curve?
Rivals will match a price decrease and will ignore a price increase; irrational to change prices; supply changes but price stays the same because mc=mr is still at the same point.
What is covert collusion?
When collusion is secretive, no one knows about it.
What are the optimal conditions for a cartel?
High barriers to entry; trust; homogenous goods; innovation ceiling.
What is a cartel?
A partnership between 2 or more companies whose goal is to manipulate the market to their advantage.
What is game theory?
Method of analysis for possible outcomes.
What is a monopsony?
A single buyer of either a factor of production or a good/service.
What are the advantages of a monopsony?
Improved quality - suppliers of labour all compete to sell to one buyer; lower prices; firms have power of scarcity, thus lower costs.
