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Micro Economics > 5.1 Perfect Competition > Flashcards

5.1 Perfect Competition Flashcards

1
Q

what are the different market structures?

A

perfect competition
monopolistic competition
oligopoly
monopoly

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2
Q

how is a market structure characterised?

A

number of firms in the market
degree of product differentiation
ease of entry to market

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3
Q

the more firms there are the more…

A

competitive the market is

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4
Q

the more differentiated the product…

A

the less competitive the market

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5
Q

what are products like in a perfectly competitive market

A

homogenous

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6
Q

how can products be differentiated?

A

price, branding, quality

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7
Q

what does the differentiation of a product effect?

A

cross ped

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8
Q

what are barriers to entry designed to do?

A

prevent new firms from entering the market profitably

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9
Q

examples of high barriers to entry

A

economies of scale
brand loyalty - makes demand more elastic
controlling important technologies in the market
having a strong reputation

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10
Q

what is an important objective of most firms?

A

profit

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11
Q

what is profit

A

TR-TC

the reward that entrepreneurs yield when the take risks

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12
Q

when do firms break even

A

when TR=TC

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13
Q

when is a firms profit maximised?

A

when they are operating at the price and output which derives the greatest profit
MC=MR

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14
Q

what does MC=MR mean

A

each extra unit produced gives no extra loss or no extra revenue

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15
Q

when do profits increase

A

when MR > MC

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16
Q

why do some firms choose to profit maximise

A

provides higher wages

retained profits are a cheap source of finance rather than getting loans

17
Q

what is the principal agent problem?

A

when the agent make decisions for the principal

but the agent is inclined to act in their own interests rather than those of the principal

18
Q

what is an example of the principal agent problem?

A

when shareholders and managers have different objects that might conflict

19
Q

what are other possible objectives of a firm

A 
survival
growth
increasing their market share
quality
maximising sales revenues
20
Q

what is profit satisficing

A

when a firm is earning just enough profit to keep shareholders happy

21
Q

characteristics of a perfectly competitive market

A 
many buyers and sellers
sellers are price takers
perfect knowledge
homogeneous goods
firms are short run profit maximisers
22
Q

how is price determined in a perfectly competitive market

A

by the interaction of demand and supply

23
Q

why are profits likely to be lower in a competitive market

A

because each firm has a small market share and their market power is small

Micro Economics (12 decks)

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