MICRO - Unit 4 Flashcards
(43 cards)
What are market structures?
is the number of firms within an industry and the way in which those businesses behave
What is the spectrum of competition?
monopoly - duopoly - oligopoly - monopolistic competition - perfect competition
What is the competition ratio?
tells us the number of firms that dominate the market
What are the features of perfect competition?
- large number of producers in the market
- no barriers to enter
- firms are relatively small in size and sell to a large number of small buyers
- all producers are price takers
- each firm can sell all of its output at the current market price
What does the firm being able to sell all of its output at the current market price mean for perfect condition?
- would not lower its price
- If they did raise price it would sell nothing as buyers would go to another seller
- means that the demand curve for each firm is price elastic i.e. horizontal
D = AR
Average revenue (total revenue/output) is always the same
What is imperfect competition?
is a type of market structure that exhibits some but not all elements of perfect competition
What are the differences between imperfect and perfect competition?
- less firms in the market
- some form of product differentiation
- are at least some barriers to entry and exit
- demand curve is downward sloping
- suppliers can influence prices
When does monopoly occur?
when one firm dominates the market
When does oligopoly occur?
when a few firms dominate the market
When does monopolistic competition occur?
when there are many firms in the market but there is some form of product differentiation
What are the features of monopoly?
- price leaders
- new product development is not affected by competitors
- use promotion to inform and persuade customers
- can increase sales revenue through increasing market size
- barriers to entry exist in monopoly markets that stop firms from entering the market
- ## high costs to enter
Why are monopolies price leaders?
they can charge high prices but are often restricted from doing so by government regulation
When does a duopoly occur?
where there are only two firms in the market
What are the features of duopoly?
- exploit consumers by charging high prices
- similar barriers to entry that exist in monopoly markets
- tend to compete on non-price competition such as promotion
- accused of collusion - making agreements between each other that restrict competition
What are the features of oligopoly?
- barriers to entry exist particularly through advertising
- tend to compete on non-price competition such as promotion
- take into account the reaction of competitors when making decisions regarding pricing
- therefore unlikely to lower price as a long term strategy
- spend heavily on new product development
- branding is crucial and expensive marketing budgets are available
What are the features of monopolistic competition?
- barriers to entry are very low - easy for firms to enter the market, creates strong competition
- mix between monopoly power and competition leads to the term monopolistic competition
- firms within this market will try to brand their product. This might be through the building up of a reputation
What are objectives?
long term goals which determine the guiding principles of a business
What are some goals for a business?
SMART profit maximisation survival profit satisficing sales maximisation revenue maximisation market share
What is profit maximisation?
reach highest levels of profit
When does profit maximisation occur?
where the difference between total revenue (TR) and total cost (TC) is at its highest
What is profit satisficing?
a level of profit below profit maximisation that satisfies the needs of the owners or managers of an organisation
What does sales maximisation cause?
increase the size of the firm
When does revenue maximisation occur?
at the point where marginal revenue = 0
What is the main characteristic of perfectly competitive market?
the price is determined by the interaction of demand and supply
