4.1.5 - Perfect competition, imperfectly competitive markets,

Question 1

What is the spectrum of market structure show?

Answer 1

• There is a range of market structures. The market is concerned with how the market is organised.
• The spectrum of competition ranging from perfect competition at one end of the spectrum to pure monopoly at the other end.

Question 2

What are market structure characterised by?

Answer 2

• The number if firms in the market
• The degree of product differentiation
• Ease of entry in the market

Question 3

How does the number of firms affect market structure?

Answer 3

• The more firms there are the more competition there is .This also includes the extent of competition from abroad

Question 4

How does the degree of product differentiation affect market structure?

Answer 4

• The more differentiated the products the less competitive the market.
• In a perfectly competitiveness, products are homogenous.
• Products can be differentiated using price, branding and quality. This affects cross price elasticity of demand.

Question 5

How does the ease of entry into the market affect market structure?

Answer 5

• This is the number and degree of the barrieres to entry.
• Barriers to entry are designed to prevent new firms entering the market profitibly
• This increases producer surplus
• The higher the barriers to entry the less competitive the market.

Question 6

Give the example of the ‘ease of entry to the market’?

Answer 6

• Economies of scale
• Brand loyalty, which maes demand more inelastic.
• Controlling the importance technologies in the market.
• Having a strong reputation.
  -Barriers to entry can be structural, where they arise due to differences in production costs.

Question 7

What is a firms most important objctive?

Answer 7

• Profit

Question 8

Models that consider the traditional theory of the firm are based upon the assumption that firm aim to…..?

Answer 8

• Maximise profits

Question 9

How to calculate profits?

Answer 9

-Profit is the difference between total revenue and total cost.
- It is the reward that entreprenuers yield when they take risks.
-A firm profit maximises when they are operating at the price and output which derives the greater profit.

Question 10

When do firms break even?

Answer 10

TR= TC

Question 11

Where does profit maximisation occur?

Answer 11

• MC= MR

Question 12

When do profit increase?

Answer 12

• Where Marginal revenue is greater than marginal cost

Question 13

When do profits decrease?

Answer 13

When marginal costs are higher than marginal revenue

Question 14

Why do some firms choose to ptofit maximise?

Answer 14

• It provides greater wagess and divends for entreprenuers.
• Retained profits are a cheap source of finance, which saves paying higher interest rates on loans
  -In the short run, the interest of the owners or shareholders are most important, since they aim to maximise their gain from the company.

Question 15

Why might some firms profit maximise in the long run?

Answer 15

Since consumers do not like rapid price changes in the short run, so this will provide a stable price and output.