Final Week Micro Flashcards
What are the internal economies of scale?
Technical, Purchasing, Managerial, Financial, Risk Bearing
How do external economies of scale effect the LRAC?
Shift up or down
What is a contestable market?
where a new market entrant has equal access to all production techniques available to the incumbents and where entry decisions can be reversed without extra costs
What is limit pricing?
Pricing the incumbent firms to deter entry, designed as a barrier to entry, below profit max but above competitive level charging a lower AC for a rival
What is predatory pricing?
Pricing below AVC, drive competitor firms out of the market.
Alleged predatory pricing example…
Uber
Who came up with contestability as a theory?
Baumol
What are the groups of barriers to entry?
Legal, (patents, licenses) Technical (start up costs) Strategic (predatory pricing) Brand loyalty
What is a key example of contestability?
Parcel sector - Yodel, Amazon Logistics, Click and Collect, Hermes
What is a policy tackling occupational labour market immobility?
The apprenticeship levy - 0.5% of payroll for training and professional development - overcomes the free rider problem creating a lack of incentive to train workers
What are the benefits to third degree price discrimination?
dynamic efficiency, economies of scale, cross substidisation
What are the necessary conditions for third degree price discrimination?
price making ability, information to separate market, prevention of resale
What is a natural monopoly?
Market structure where a single firm could produce at a lower avc than multiple firms, pronounced economies of scale
What are the two assumptions of rational economic decision making?
consumers sim to maximise utility, producers aim to maximise profit
What is an example of government failure in Scotland?
Rent freeze - set at 0% - hitting the supply of rented property - long term affordability- negative impact to other objectives such as net zero and energy efficiency. Increasing the risk of shadow markets.
