Business Competition

Question 1

What is a monopoly?

Answer 1

A monopoly is a market structure where there is only one firm dominating the market, and it has the power to control prices and supply.

Question 2

What are the barriers to entry when entering a market with a monopoly?

Answer 2

brand loyalty, economies of scale, predatory pricing, and marketing barriers.

Question 3

What are the advantages of monopolies?

Answer 3

they can enjoy economies of scale, obtain high profits, and become efficient if there’s only one firm that supplies all the consumers.

Question 4

What are the disadvantages of monopolies?

Answer 4

consumers suffer higher prices, quality of products may suffer due to lack of competition, and the business has less incentive to innovate.

Question 5

What is an oligopoly?

Answer 5

An oligopoly is a market structure where a market is dominated by a small number of firms.

Question 6

What are the features of an oligopoly?

Answer 6

collusion can occur, high barriers to entry, and non-price competition.

Question 7

What are the advantages of an oligopoly?

Answer 7

product choice and quality, price in line with competitors, and more incentive for workers and the firm to develop their goods and services.

Question 8

What are the disadvantages of an oligopoly?

Answer 8

high barriers to entry, collusion occur, and price wars may occur.

Question 9

What are some advantages of small firms?

Answer 9

Flexibility, personal service, lower wage cost, better communication, innovation.

Question 10

What are some disadvantages of small firms?

Answer 10

Higher costs, difficulty attracting quality staff, vulnerability.

Question 11

What are some reasons for a business to stay small?

Answer 11

Size of market, lack of finance, nature of market, aims of the entrepreneur, diseconomies of scale.

Question 12

What are some advantages of large firms?

Answer 12

Economies of scale, market domination, large scale contracts.

Question 13

What are some disadvantages of large firms?

Answer 13

Bureaucracy, coordination and control, lower incentives.

Question 14

What are some factors influencing the growth of a business?

Answer 14

Government regulations, access to finance, desire to be risk-bearing, and economies of scale.

Question 15

Why might governments prevent the growth of some firms?

Answer 15

To prevent them from becoming too big and reducing competition.

Question 16

Why do businesses need finance to grow?

Answer 16

To invest in new resources like machinery, labour, and property, and to develop new products and services.

Question 17

How can diversification of products reduce the risk for a business?

Answer 17

Selling into new markets and developing new products means that if one product fails to make a profit, success in the others can keep the firm going.

Question 18

Why might a business be limited in its growth potential in certain markets?

Answer 18

It may be difficult to enjoy economies of scale in those markets, such as in taxi firms where there are few opportunities for cost savings through bulk buying or production.