business structure

Question 1

Perfect competition

Answer 1

Perfect competition exists in a market whereby many small firms produce virtually identical products at similar prices.

Question 2

Characteristics of perfect competition

Answer 2

There are a large number of businesses competing; therefore, no business can influence the activities of others.
There will not be one dominant business that is classed as a market leader. All businesses operating in this type of market will need to accept the going price of the marketplace which means that they are ‘price takers’.
The goods sold in this type of market are price takers homogenous.
There are no barriers to entry or exit of the market. For example, all businesses will benefit in the same way from economies of scale or from the levels of productivity.
Businesses will have the same access to technology and thus have equal levels of productivity.
Consumers in a perfectly competitive market have full market information. Customers will be fully aware of the goods and services being offered in the marketplace and the prices at which they are being sold. Therefore, customers can access a wide number of suppliers of a good or service.

Question 3

What is an oligopoly

Answer 3

An oligopoly exists when there are many businesses operating in a marketplace but only a few large businesses dominate the market.

Question 4

Monopoly

Answer 4

A monopoly exists when there is a single producer within a market (one business has 100% of the market). This is known as a pure monopoly.

Question 5

Characteristics of a monopoly

Answer 5

barriers to entry to prevent new businesses from entering the market
the business having price-setting and price- making powers as they have a significant influence on price
the business benefitting from economies of scale
the business potentially earning supernormal levels of profit – in which case, profit maximisation is assumed.

Question 6

Monopolistic competition

Answer 6

a type of market structure where many companies are present in an industry, and they produce similar but differentiated products

Question 7

Characteristics of monopolistic competition

Answer 7

Many companies
The differentiation of goods
Low market power
A few barriers to entry
Freedom in decision-making