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EoS > Intro & Part 1 > Flashcards

Intro & Part 1 Flashcards

1
Q

Why does competition lead to a decrease in the number of rims in the long run?

A

Because of Economies of scale

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2
Q

What is the neoclassical theory of the firm regarding competition?

A

It is based on a static conception of competition

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3
Q

For Schumpeter by what is competition driven?

A

By innovation

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4
Q

Give details about monopoly status according to the dynamic view of competition

A

It is a temporary phenomenon that is not capable os sustaining a stable long-run equilibrium

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5
Q

What does SCP mean?

A

Structure Conduct Performance

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6
Q

What does Industrial Organization do?

A

Develops theories to explain the behaviour and performance of firms and the industries to which they belong

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7
Q

What does the SCP paradigm do?

A

The structure of a market influences the conduct of the firms operating in the market, which in turn influences the performance of those firms.

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8
Q

What is IO concerned with?

A

1\ Size structure of firms
2\ causes of size structure
3\ Effects of concentration on competition
4\ Effects of competition on prices

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9
Q

What are the STRUCTURE characteristics?

A

1\ Number and size distribution of buyers and sellers
2\ entry and exit conditions
3\ product differentiation
4\ Vertical integration and diversification

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10
Q

What are the CONDUCT characteristics?

A 
1\ Business objectives
2\ Pricing policies
3\ Product design
4\ R&D
5\ Collusion
6\ Merger
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11
Q

What is an horizontal merger?

A

Merger between firms producing the same or similar products and does impact the seller concentration

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12
Q

What is a vertical merger?

A

Merger between firms at successive stages of production process and does affect the degree of vertical integration

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13
Q

What is a conglomerate merger?

A

Merger between firms producing different products and does affect the degree of diversification

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14
Q

What are the characteristics of PERFORMANCE?

A 
1\ Profitability
2\ Growth
3\ Quality of products and services
4\ Technological progress
5\ Productive and allocative efficiency --> maximum technologically feasible output from a given combination of inputs
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15
Q

What are the five forces of Porter’s model?

A 
1\ Buyers
2\ Suppliers
3\ Potential rivals
4\ Substitutes
5\ Competitors
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16
Q

Of what type is Porter’s approach?

A

Essentially static

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17
Q

How is competitive advantage measured?

A

By the value a firm is able to create by excess of its costs

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18
Q

What are the 2 types of activities of a firm specific to the value chain concept of Porter?

A

1\ Primary activities

2\ Support activities

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19
Q

What do generic strategy include?

A

1\ Cost leadership
2\ Differentiation
3\ Focus

20
Q

What is the law of diminishing returns?

A

It is the law of diminishing marginal productivity

21
Q

What does happen when Marginal Product of Labour > Average Product of Labour ?

A

APL increases

22
Q

What does happen when APL = MPL ?

A

APL is at its maximum

23
Q

What is the marginal cost?

A

It is the additional cost a firm incurs in order to produce one additional unit of output

24
Q

What does happen when APL rises?

A

AVC falls

25
Q

What does happen when the SRMC < AVC ?

A

AVC decreases

26
Q

What does happen when SRMC = AVC ?

A

AVC is at its minimum

27
Q

What are increasing returns to scale?

A

When returns increase more than proportionately than the increase of inputs

28
Q

What is an isoquant on LRAC?

A

A curve where each point represents a combination of labour and capital giving the same output

29
Q

What is an isocost on LRAC?

A

Line giving combination of labour and capital costing me the same amount

30
Q

Give 3 types of economies of scale

A

1\ Large-scale production
2\ Indivisibilities
3\ Learning economies

31
Q

Where do diseconomies of scale come from?

A

1\ Strained communications
2\ Long chain of commands
3\ Low morale
3\ Poor industrial relations

32
Q

What are economies of scope?

A

Cost savings arising when a firm produces two or more outputs using the same set of resources

33
Q

What is the Minimum Efficient Scale?

A

The output level beyond which the firm can make no further savings in LRAC through further expansion.
The MES is achieved when all economies of scale are exhausted

34
Q

What is the shape of the Total Revenue function related to quantity demanded in a monopoly situation?

A

Gauss

35
Q

What happens if the Price Elasticity of Demande is > 1 ?

A

TR increases as Price falls, the demande function is therefore called price elastic

36
Q

What is the cross price elasticity of demand?

A

The change in demand of a product to a change in price of another product

37
Q

What does it mean if CED > 0 ?

A

Products are substitutes

38
Q

What does it mean if CED < 0 ?

A

Products are complements

39
Q

What is the price elasticity of supply?

A

The sensitivity of quantity supplied to market price

40
Q

What are the most important characteristics of market structure?

A

1\ # of firms
2\ extent of barriers to entry
3\ degree of product differentiation
4\ Quality of information

41
Q

Of what type are the products in the perfect competition?

A

Identical

42
Q

How are the buyers and the sellers in perfect competition?

A

Price takers

43
Q

What is the Lerner index?

A

Degree to which the price exceeds marginal costs. It is the reciprocal of the PED. It provides a measure of the market power of a firm

44
Q

What is allocative efficiency?

A

All agents are fully allocated and one agent can’t be better off without making another agent worse off

45
Q

What does economically efficient mean?

A

Combination of factor inputs enabling to produce at the lowest possible cost

46
Q

What is the consumer surplus?

A

The sum over all consumers of the difference between the maximum amount each consumer would be prepared to pay and the price each consumer actually does pay

47
Q

What is the producer surplus?

A

The total reward producers receive beyond the reward they require to cover their costs of production, including their normal profit.
In a monopoly situation, it is the monopoly abnormal profit

EoS (10 decks)

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