key terms - Market structure

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Market structure = the composition of firms operating in a market which determines the extent of
competition in that market.
Market Entry/Exit = the movement of businesses in/out of a particular market when the market looks
potentially profitable/in decline.
Barriers to entry = Features of an industry which makes it difficult for new firms to enter.
Spectrum of competition = the term for the wide range of different levels of competition in different
Perfect competition = exists in a market when there are many buyers and sellers all interacting freely
with each other there are no barriers to entry and exit and the product is identical
Monopolistic competition = similar features of perfect, some differences in products offered. (Air
Oligopoly = Small number of large firms. Large barriers to entry and the products offered are
differentiated through design, technology and/or banding. (Car makers)
Monopoly = single firm industry where one producer has control over the long run. (More than 25%)
Natural monopoly = Economies of scale are so large and extensive relative to the size of the market
that the presence of more than one producer will lead to major cost inefficiencies (water)
Normal Profit = level of profit needed to keep resources in the industry in the long term. It
represents the maximum amount of profit available in highly competitive markets
Abnormal profit = term for the level of profit that exceeds that needed to stay in the industry.
Homogenous = Identical to each other
Interdependent = actions of one effect the others (chess game)
Cartel = grouping of firms which agree prices and production levels to restrict competition (opac)


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