5.9 The Dynamics Of Competition And Competitive Market Processes

Question 1

How does the economy benefit from the survival of the fittest?

Answer 1

Weeding out productively inefficient firms

Question 2

Firms don’t just compete in price, they compete on…(3)

Answer 2

-improving products
-reducing costs
-improving services

Question 3

In imperfect competition firms take on non-price competition such as in?(

Answer 3

-product differentiation
-marketing
-packaging
-brand imaging

Question 4

What does non-price competition allow?

Answer 4

Innovative and entrepreneurial firms to enter the market more easily

Question 5

How can business decisions that appear competitive and in the consumers interest, anticompetitive?

Answer 5

The business aims to increase market power of already dominant firms(linked closely with the process of creative destruction)

Question 6

What is creative destruction?

Answer 6

Part of the process through which capitalist economies change over time and become more dynamically efficient

Question 7

What is creative destruction google def

Answer 7

the process of innovation and technological change that leads to the destruction of existing economic structures, such as industries, firms, and jobs.

Question 8

Diagram for a firm facing different prices in a perfectly competitive market

Answer 8

Question 9

If the price is initially P4 what output should be produced and why?

Answer 9

Q4 to maximise profit (remember AR is horizontal in perfect competition)

Question 10

What does abnormal profit in a perfectly competitive market cause?

Answer 10

Firms to be incentives to enter the market and they are able to do this because of the absence of any barriers to entry

Question 11

Describe what happens to the firm if it changes p3?

Answer 11

It earns enough revenue to cover its variable cost of production and can pay a part of fixed costs however it is still making a loss as it is charging less than the cost it takes to produce the product (p2)