COMPETITIVE AND CONCENTRATED MARKETS

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what’s a monopoly?
AO1
one seller with price setting power
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what’s a oligopoly?
AO1
few sellers with price setting power
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what’s monopolistic competition ?
many sellers with some price setting power
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what is perfect competition?
many sellers with little / no price setting power
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what does CSR stand for and what does it involve?
corporate social responsibility involves when firms act in a sustainable way whilst trying to make supernormal profit
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what’s the divorce or ownership and who does it involve ?
when managers and shareholders have different objectives eg managers want to maximise prevented more than profits
managers have main control but shareholders can regain control if they think manager is creating a bad culture etc
eg Apple and Steve Jobs
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according to economic theory what’s the traditional objective for firms?
profit maximisation
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if firms want to maximise revenue what point must they produce up to
where marginal revenue = O
otherwise after diminishing returns are likely to set in
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6 characteristics of perfect competition ?
- many buyers and sellers
- homogeneous products
- no barriers to entry or exit
- price takers (based on MS & MD) - supernormal profit in ST, normal profit in LT
- aim to maximise profit
- perfect information so buyers and sellers can make rational de
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what is the demand curve equal to in perfect competition ?
market utility (MU)
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what’s the supply curve equal to in perfect competition ?
marginal cost (MC)
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explain how perfect competition is allocatively efficient
if forces of demand of supply are in equilibrium so MU = MC
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when are firms in perfect competition, productively efficient?
what point on a graph ?
if there’s NO economies of scale
so where AC is minimised (lowest point) because this is the only place normal profits can be made, but if EoS exist then a monopoly could be more efficient then firms in perfectly competitive markets
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why aren’t perfectly competitive firms dynamically efficient ?
don’t make supernormal profits, can’t invest in R&D and new technologies
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what is allocative efficiency ?
when scarce resources are allocated according to consumer preferences at a price equal to marginal cost
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what is productive efficiency?
when a firm is operating at the lowest point on their average cost curve in the short run or long run
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what is dynamic efficiency ?
a markets ability to promote cost reducing and/or product - enhancing technological change
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what is X - inefficiency ?
when a firm is not operating at minimum average cost - perhaps due to organisational slack, wastage in the production process or poor management
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what is social efficiency ?
where external costs and benefits are accounted for ie when
MSB = MSC
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static efficiency?
efficiency at a particular point in time either allocative or productive
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formula for profit maximisation
marginal revenue = marginal cost
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when is normal profit made?
when average revenue. = average costs
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why do firms in perfect competition only make supernormal profit in short term ?
at first firms accept the price at equilibrium and make normal profits as AR = AC, then AC begin to fall (U Shape) so AC would fall but MC wouldn’t - firms now making supernormal profit in SR.
supernormal profit and low barriers would attract more firms
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a decrease in demand in a perfectly competitive market would lead to?
- decrease in equilibrium price
- firms making a loss
- firms exiting the market and supply shifting left
- firms returning to make normal profits after firms have left
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explain why firms operating in a perfectly competitive market aren’t likely to have dynamic efficiency
AO1 - dynamic efficiency requires r&d and innovation over time which requires supernormal profits
AO2 - perfectly competitive markets only make normal profits bc any supernormal profits would be immediately competed away, so perfectly competitive firms c
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5 characteristics of monopolistic competition ?
- product differentiation ( larger differences, more inelastic demand )
- low / medium barriers to entry - can have brand loyalty
- small / medium sized firms
- compete on things other then price eg product
( non price competition. )
- some price ma
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why isn’t monopolistic competition allocatively or productively efficient
price is too high to be allocatively efficient as consumers are worse off and can’t be productively efficient as produce above the average cost curve
but is more efficient then monopoly
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7 features of an oligopoly?
- few firms with high concentration ratio and high price setting power
- relatively high barriers to entry
- product differentiation
- interdependence between firms - can often implement collusive strategies
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what’s first degree price discrimination ?
a complete transfer of consumer surplus to producer surplus so each customer is charged the maximum they’d spend
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what is second degree price discrimination?
involves charging different prices based on the quantity purchased , so more you purchase cheaper it gets - encourages ppl to spbuy large orders
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what is third degree price discrimination?
charges different prices to different groups of consumers based on what segment they are in - age, geographical, industry etc as different groups have different elasticities of demand
eg amazon
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for price discrimination to work what must 2 groups of consumers have?
different price elasticities of demand
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2 advantages of price discrimination ?
✅increased revenue - higher profits could be reinvested - improve dynamic efficiency
✅higher incomes pay more for a good - progressive n fair - may help to cross subsidies products so that poorer people can afford them
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2 disadvantages of price discrimination?
❌not allocatively efficient- bc price is greater then marginal costs
❌some may argue that consumer paying a diff price for sake good or service is unfair
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Other cards in this set

Card 2

Front

what’s a oligopoly?
AO1

Back

few sellers with price setting power

Card 3

Front

what’s monopolistic competition ?

Back

Preview of the front of card 3

Card 4

Front

what is perfect competition?

Back

Preview of the front of card 4

Card 5

Front

what does CSR stand for and what does it involve?

Back

Preview of the front of card 5
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