Competitive and concentrated markets

Question 1

What are the objectives of firms?

Answer 1

Survival
Growth
Market share

Others - Employee welfare, protection of the environment, ethical behaviour

Question 2

Abnormal profit is competed away due to…

Answer 2

More firms entering the market due to there being no barriers to entry, ensuring only normal profit is made

Question 3

When does a pure monopoly exist?

Answer 3

When there is a single supplier in a market

Question 4

UK law suggests that a 25% market share gives firms…

Answer 4

Monopoly power

Question 5

What makes monopoly power greater?

Answer 5

Barriers to entry
Few competitors
Perceived differences between products

Question 6

Characteristics of perfect competition

Answer 6

Number of firms = Many
Product differentiation = None
Barriers to entry = None
Knowledge = Perfect 
Influence of a firm on price = Zero

Question 7

Characteristics of monopolistic competition

Answer 7

Number of firms = Many
Product differentiation = Some
Barriers to entry = Few
Knowledge = Widespread
Influence of a firm on price = Low

Question 8

Characteristics of a oligopoly

Answer 8

Number of firms = Few
Product differentiation = Relatively high
Barriers to entry = Many
Knowledge = Restricted
Influence of a firm on price = Quite high

Question 9

Characteristics of a monopoly

Answer 9

Number of firms = One
Product differentiation = Unique
Barriers to entry = Very many
Knowledge = Restricted
Influence of a firm on price = Very high

Question 10

What does a concentration ratio measure?

Answer 10

The combined market share of the biggest firms in a market

Question 11

How do you find the concentration ratio of a market?

Answer 11

Add up the market shares of the largest firms in the market