Theory of the Firm -unit 3

Question 1

What is the concentration ratio

Answer 1

The market share controlled by the ‘n’ largest firms

Question 2

How many firms are in perfect comp?

Answer 2

Many small firms

Question 3

How many firms are in monopolistic comp

Answer 3

Many small firms

Question 4

How many firms are in an oligopoly

Answer 4

A few large firms dominate

Question 5

How many firms are in a monopoly

Answer 5

One large firm with 100% concentration ratio

Question 6

What type of product is in Perfect comp

Answer 6

Homogenous

Question 7

Why type of product is in monopolistic comp

Answer 7

Similar products

Question 8

Why type of product is in oligopoly market

Answer 8

Similar but distinct
Eg pc and mac
Samsung s4 and iPhone 6

Question 9

Why type of product is in monopoly

Answer 9

Unique

Question 10

What kind of knowledge is in perfect comp

Answer 10

Perfect

Question 11

What kind of knowledge is in monopolistic comp

Answer 11

Imperfect

Question 12

What kind of knowledge is in an oligopoly

Answer 12

Imperfect

Question 13

What kind of knowledge is in monopoly

Answer 13

Imperfect

Question 14

What kind of barriers to entry are in perfect comp

Answer 14

None

Question 15

What kind of barriers to entry are in monopolistic comp

Answer 15

Low barriers to entry

Question 16

What kind of barriers to entry are in oligopoly

Answer 16

High

Question 17

What kind of barriers to entry are in monopoly

Answer 17

High

Question 18

What price making powers do firms in perfect comp have

Answer 18

They are price takers

No price setting power

Question 19

What price making powers do firms in monopolistic comp have?

Answer 19

Some degree of price setting power
Brand orientated
Eg. Dior makeup

Question 20

What price making powers do firms in oligopoly markets have?

Answer 20

Significant price setting power

But interdependent

Question 21

What price making powers do firms in monopoly markets make

Answer 21

Price maker

Question 22

Are supernormal profits made in perfect competition?

Answer 22

Only in the short run

In the long run the supernormal profits are out competed by new firms entering the market.

Question 23

When is the shutdown point for a perfectly competitive firm?

Answer 23

When the firm is not converging average variable costs.

Question 24

Give some examples of firms in monopolistic competition

Answer 24

Hairdresser
Restaurant
Make up industry

Question 25

What would happen if a price war occurred in an oligopoly market

Answer 25

If one firm lowers prices The others will follow So overall they would lose revenue Ergo firms avoid price competition

Question 26

What is collusion

Answer 26

An agreement between two or more firms to limit competition, set prices/output and increase welfare gains of the firms concerned.

Question 27

Is collusion legal?

Answer 27

Collusion is illegal in most cases | OPEC is an example where collusion is not illegal.

Question 28

What is overt collusion

Answer 28

Where firms openly fix prices, output, marketing or the sharing out of consumers

Question 29

What is a cartel

Answer 29

A formal agreement between firms to act together Eg. Sugar cartel in USA between 1934 and 1974 to guarantee price of sugar

Question 30

What is tacit collusion

Answer 30

Behind the scenes collusion. | No spoken agreement.

Question 31

What is a whistleblower

Answer 31

A firm who informs the authorities about a collusion agreement in return for immunity against prosecution.

Question 32

List these in order from most competitive market, to least competitive Perfect competition Monopoly Oligopoly Monopolistic competition

Answer 32

``` Most competitive -perfect comp -monopolistic comp -oligopoly -monopoly Least competitive ```

Question 33

What is price discrimination

Answer 33

Where a firm sells the same product in a different market with differing elasticises at different prices.

Question 34

What three conditions will price discrimination be successful?

Answer 34

High barriers to entry and a degree of monopoly power At least two separate markets with differing price elasticises of demand The markets can be kept separate at a cost that is lower than the gain in profits.

Question 35

What is a contestable market

Answer 35

A market with low sunk costs and therefore low barriers to entry or exit

Question 36

What is monopsony power

Answer 36

Exits when sellers face powerful buyers Eh big an individual wishes to work in emergency healthcare in UK, then sole buyers of such employees is NHS.