Chapter 6 - Competition Flashcards
What is market structure?
The number and relative size of firms in an industry
What are the 5 types of market structure? Of the 5, which 3 are considered imperfect competition and are the most common?
1.Monopoly
2. Duopoly
3. Oligopoly
4. Monopolistic competition
5. Perfect competition
Duopoly, oligopoly, monopolistic competition
What is a monopoly?
One company produces the entire market supply of a particular good or service. They are the price setter, have no direct competitors, and have complete market power
What does it mean to have complete market power??
Have the ability to alter the market price of a good or service
What is monopolistic competition?
Many firms essentially provide the same product but each enjoys significant brand loyalty. ex- makeup brand that includes a darker tone line
What are the 4 conditions for perfect competition?
- Homogeneous product
- Many small firms
- Free entry and exit
- All firms face same costs
In a perfectly competitive firm, no one has ___________
market power
Explain the graph of the market demand curve
Y axis: Price
X axis: Quantity
What will the market demand curve look like in a perfectly competitive firm?
Straight horizontal line
Total profits depend on both _____&______. not just revenue
revenue and cost increases (as output expands)
To maximize profit, firm should produce an additional unit of output only if…..?
it brings in revenue that is greater than the cost of producing it
Why does cost not increase at a constant rate?
- Variable costs
- Marginal costs increase
To determine if they should produce more, what 2 things does a firm compare??
Price and marginal costs
if price is greater than marginal costs…..
increase output rate
If price = marginal costs…..
keep rate of output. profits are maximized at this point
if price is less than marginal costs…..
decrease output rate
What is market supply?
Total quantity of a good that sellers are WILLING AND ABLE to sell at alternative prices in a given time period
Market supply curve is the sum of…?
sum of the marginal cost curve of all the firms
What determines the supply decisions of a firm?
Marginal costs
Anything that alters marginal costs will_____
change supply behavior
Is the number of firms in a competitive industry fixed?
NO
What is a driving force affecting market equilibrium?
Industry entry and exit
When firms see profit and decide to ENTER an industry, what happens to the market supply curve and the price?
Supply curve shifts to the right and price decreases. Industry output increases and price falls
Market supply curve is a ____ sloping curve
upwards
What is the force driving down market prices?
entry
As firms enter a competitive industry, price falls until ________
there are no economic profitd
When do firms leave an industry?
When profit opportunities look better elsewhere and price falls below average cost
As firms exit, what happens to price and market supply curve?
Market supply curve shifts to the left as price increases and quantity produced decreases
As long as it’s easy for existing producers to expand production or for new firms to enter, economic profits will,,,,?
NOT LAST LONG
