Competition - 5 Flashcards

1
Q

describe the spectrum of competition

A

pure monopoly - price maker and perfect competition -price takers

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2
Q

what are the 6 objectives of firms

A

profit max, preventing divorce of ownership of control, sales max, survival, growth and increasing market share.

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3
Q

where is profit maximisation on a graph

A

MC =MR

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4
Q

what are the benefits of profit maximisation?

A

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

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5
Q

what does divorce of ownership of control mean

A

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

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6
Q

what is the point of sales max

A

this is where revenue is at a max, can allow firms to experience economies of scale

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7
Q

what are factors required for perfect competition?

A

very low barriers to entry, perfect knowledge, homogeneous products

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8
Q

what’s the difference between the single firm market vs whole market diagram in perfect competition

A

AR= D for single marker

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9
Q

where does the marginal cost intercept the AC

A

Bottom of AC

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10
Q

what happens to super normal profit in the long run for perfect competition

A

it is competed away

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11
Q

what are the advantages of perfect competition?

A

productive efficiency and allocative efficiency

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12
Q

define productive efficiency

A

when marginal cost = average cost - ie lowest AC minimises wastage of resources -static

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13
Q

define allocative efficiency

A

MC = AR where production is aligned with consumer preferences -static

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14
Q

what are the characteristics of monopolistic competition

A

large number of firms, similar products - different branding, low barriers to entry

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15
Q

what are factors of a oligopoly

A

imperfect competition, small number of powerful firms, eg petrol stations,

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16
Q

what does the kinked demand curve show

A

it shows that in an oligopoly a price increase would see elastic demand while a price decrease would see inelastic demand

17
Q

how will firms compete in an oligopoly

A

non price competition, such as differentiation, customer service, loyalty

18
Q

what is a monopoly

A

a firm which is the single seller in a market

19
Q

what are some barriers to entry?

A

economies of scale, legal barriers, product differentiation, sunk costs and natural barriers to entry

20
Q

what are some advantages of a monopoly?

A

economies of scale and inovation

21
Q

what are some disadvantages of a monopoly?

A

x efficiency- lazy to reduce costs, productive and allocative inefficiency, communication causing diseconomies of scale.