Micro 5.8 0.0 / 5 ? EconomicsThe Competitive Market ProcessA2/A-levelAQA Created by: neve.whinnCreated on: 15-03-20 15:52 What does price competition involve? Reducing the price of a good or service in order to make it more attractive than those of competitors. 1 of 11 What are firms in concentrated markets likely to benefit from? Economies of scale. 2 of 11 How do firms benefit from economies of scale? This will reduce their average costs of production such that firms may be able to reduce prices while still making a supernormal profit. 3 of 11 What is an advantage of supernormal profits? These profits can be reinvested into research and development in order to come up with new, innovative products or methods of production. 4 of 11 What can innovative products or methods of production as a result of research and development lead to? Dynamic efficiency (improvement in productive efficiency over time), which leads to a reduction in the firms costs at every given output level. 5 of 11 What can a firm do if it wishes to take market share from a rival? Initiate a price war, whereby one firm begins by undercutting others. 6 of 11 What is a disadvantage of a price was? It will tend to reduce the profits earned by all firms and is used only as a last resort. 7 of 11 What is non-price competition? Competition on the basis of product features other than price, such as quality, advertising or after-sales service. 8 of 11 What are 2 examples of non-price competition? Quality and reliability. 9 of 11 How can firms use non-price competition to compete? To increase customer loyalty? 10 of 11 What does creative destruction allow? Firms in monopoly can use innovation to overcome existing barriers to entry, often in dramatic ways. 11 of 11
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