BEC MCQ 5.3 Flashcards
Which one is not a key assumption in a perfect competition
Customers are indifferent about which firm they buy from
The level of firms output is small relative to industry’s total output
There is a freedom of entry into and exit
in order to sell at the market controlled by monopolists
Marginal Revenue equals marginal cost
Natural monopoly
When economic and technical conditions permit only one efficient supplier
entry barrier
created barrier
large capital are basic example for barriers to entry. A barrier to entry effectively permits firms from entering the market to compete against firms
created barrier is the barrier made by firms already int he industry
Minimum efficiency scale
is the output level where long run average costs are minimized
Charecteristics of monopolistic competition include
numerous firm with differentiated products…
Ease of entry
firms exact some influence over price and market
non price competition is frequent and critical. Ex-Brand name consumer products
Perfect compotition
oligopoly
Monopoly
no obstacles
significant obstacles-kinked demand curves-differentiated products
One company will be monopoly two will be oligopoly
Whether the markets are perfectly competitive or imperfectly competitive
marginal costs equal marginal revenue
Strategic Plans
various level organizations will implement strategic plans differently
continual revaluation and revision for strategic plans is necessary
strategic plan will vary by segment
Under pure competition strategic plan focus -maintaining the market share and responsiveness of sales price to market conditions
under monopolistic competition-strategic plans include maintaining market share, but they also likely include plans for enhanced product differentiation, and allocation to advertising product research etc
Elasticity of demand or supply
is a measure of how sensitive the demand or the supply of product is to a change in its price
What if a demand for a product is price unit elastic
change in price will not have effect in total revenue
A price floor
A price ceiling is a price that is established above the equilibrium price which causes a surplus to develop
Price floor na above
Price ceiling
is a price that is established below the equilibrium price, which causes a shortage to develop. Price ceiling naa below
Value chain analysis
must be used in conjunction with the strategic plan of the organization. The value chain starts with the firm and goes all through the way to the end users of the product. Value chain analysis is critical to assessing the competitive advantage of the firm
Different type of value chain analysis
Internal Differentiation analysis-The firm may analyze its ability to create value through differentiation. when the customer thinks the firms products are superior to that of rivals
Internal costs analysis- In order to determine the internal value creating ability on the firm the sources of profit and costs of the internal activities of the firm must be analyzed.
analyzing the vertical linkage of the firm, means, understanding the activities, of the suppliers and buyers of the product and determining where value can be created to the firms operations.
micheal porters five forcast that affect the competitive environment
The threat of entry Power of buyers Power of suppliers Threat of substitutes Competitive rivalry
Reasons that competition becomes even stronger
The market is not growing fast
There are several equal size firms in the market
Customers do not have brand preferences
Costs of exiting the market exceed the costs of continuing to operate
Some firms profit from making certain moves to increase market share
the various firms in the market uses different types of strategic plans
Two types of cost advantages
competitive advantage and differential advantage
Cost leadership strategies is developed by Michael porter will work well if
buyers have large amount of bargaining power in the market
New entry firms are able to influence buyers to switch their products by cutting their price of their product for a period of time in an effort to gain market share and increase profits
heavy price competition exists in the market
Principles of substitution
Principles of substitution states that people tend to shift their buying from relatively expensive to relatively cheap goods. Thus, if the price of the product falls people tend to buy more of it and less of other expensive products
Economies of scale
In the long run firms may experience increasing returns due to economies of scale which come into a full play if large number of units are produced.
Law of diminishing returns
Increase in labour or capital beyond a point will not give proportional returns
comparative advantage
That if even one of two regions is absolutely more efficient in production of every good than is the other if each region specializes in products trade will be mutually profitable
In microecomics the distingsuihing character on the supply side is that
All inputs are variable
A shift left in demand curve
represents a decrease in demand ( at all levels) for that product.
A increase in supply
Increase in the quantity of beef demanded
When the supply and demand for a good both increase
EQUILLIBRIUM PRICE MAY INCREASE DECREASE OR REMAIN UNCHANGED
The price elasticity of demand
% change in demand/% change in price. Price elasticity of demand is defined as the percentage change in quantity demanded resulting from one percent change in price. q2-q1 --------- q1 ------------- p2-p1 --------- p1
Inferiror good
Inferior good is the one where demand declines as income increases
Price elasticity of supply
% change in quantity supplied/Change in price. Perfectly inelastic supply curves would exist if firms cannot vary input usage. Regardless of the price the firm has to use all inputs if it produces at all.
In a long run competititve market
Setting a ceiling price dictated by market forces would create a excess demand for the product
A surplus would be produced if a floor price ( under which no supplier could sell) were set above the equilibrium price suppliers would supply excess product at inflated price.
The impact of a Government price support program
result in surpluses because the program acts as a subsidy that will encourage the suppliers increase supply beyond an equilibrium point
Cost leadership: Organization seeks to capture market
through maintaining lower costs
cost leadership
differtiation-Organisations seeks to capture market share by demonstrating product value
SWOT analysis
Evalution of internal and external factors contributing to an organizations success is referred to as strengths, weaknesses, opportunities and threats. strength and weakness are internal factor and oppertunits and threats are external.
Theory of constraints
evolution technique for optimizing through put time. it does not releate to overall strategy evolution
The demand and supply for a product
will cause equilibrium point to increase
Micheal porters five things that affect propablity
Existance of a substitute product barriers to market entry bargaining power of customers market competitiveness bargaining power of suppliers
