Business behaviour

Question 1

First degree price discrimination

Answer 1

Each consumer is charged the maximum they are willing and able to pay

Question 2

Second degree price discrimination

Answer 2

Consumers are given a range of similar products with different pricing options

Question 3

Third degree price discrimination

Answer 3

Consumers are divided into different groups based on some characterises. Each group is then charged a different amount

Question 4

Conditions for price discrimination

Answer 4

Holds price setting power
Prevent second hand resale
Ability to segment market with different elasticities

Question 5

Kinked demand curve

Answer 5

Firms in oligopolistic markets will be worse off from any change in price

Question 6

Cournot model

Answer 6

Firm choices output, market set price

Question 7

Reaction function (Cournot model)

Answer 7

How a firm’s optimal output varies according to the output chosen by their rivals

Question 8

Cournot equilibrium

Answer 8

Where both firm’s actual output is the same as what the other firm predicted it would be

Question 9

Bernard model

Answer 9

Firms chooses price and market determines output
Leads to he Bernard paradox where an oligopolistic model behaviours like a market in perfect competition as each firm has an incentive to undercut their rivals by a small amount, leading to a race to the bottom

Question 10

Theory of contestable markets

Answer 10

Price and output is not determined by level of competition but whether there is a threat of competition

Question 11

Hit and run strategy

Answer 11

A firm enters a market only to make short run profits and then leaves

Question 12

Barriers to contestable markets

Answer 12

Economies of scale
Legal barriers
Sunk costs
Collusion

Question 13

Normal profit

Answer 13

Cover all costs, including the opportunity cost of the business

Question 14

Supernormal profit

Answer 14

Any profit above the normal profit level