Competition - 5 Flashcards
describe the spectrum of competition
pure monopoly - price maker and perfect competition -price takers
what are the 6 objectives of firms
profit max, preventing divorce of ownership of control, sales max, survival, growth and increasing market share.
where is profit maximisation on a graph
MC =MR
what are the benefits of profit maximisation?
profit can be re invested into developing new products or becoming more dynamically efficient, can provide higher returns for shareholders which may encourage more people to buy shares
what does divorce of ownership of control mean
where the people running a firm down own the firm as they have sold all their shares resulting a conflict between who owns the firm and who runs the firm
what is the point of sales max
this is where revenue is at a max, can allow firms to experience economies of scale
what are factors required for perfect competition?
very low barriers to entry, perfect knowledge, homogeneous products
what’s the difference between the single firm market vs whole market diagram in perfect competition
AR= D for single marker
where does the marginal cost intercept the AC
Bottom of AC
what happens to super normal profit in the long run for perfect competition
it is competed away
what are the advantages of perfect competition?
productive efficiency and allocative efficiency
define productive efficiency
when marginal cost = average cost - ie lowest AC minimises wastage of resources -static
define allocative efficiency
MC = AR where production is aligned with consumer preferences -static
what are the characteristics of monopolistic competition
large number of firms, similar products - different branding, low barriers to entry
what are factors of a oligopoly
imperfect competition, small number of powerful firms, eg petrol stations,
what does the kinked demand curve show
it shows that in an oligopoly a price increase would see elastic demand while a price decrease would see inelastic demand
how will firms compete in an oligopoly
non price competition, such as differentiation, customer service, loyalty
what is a monopoly
a firm which is the single seller in a market
what are some barriers to entry?
economies of scale, legal barriers, product differentiation, sunk costs and natural barriers to entry
what are some advantages of a monopoly?
economies of scale and inovation
what are some disadvantages of a monopoly?
x efficiency- lazy to reduce costs, productive and allocative inefficiency, communication causing diseconomies of scale.
