Market structure, supply and market outcomes

Question 1

What is market power?

Answer 1

Refers to an entity’s ability to influence marketwide outcomes

Question 2

What are the assumptions of perfect competition?

Answer 2

Many firms
Price takers
No barriers to entry

Question 3

What are the assumptions of a monopoly?

Answer 3

One firm
Price maker
High barriers to entry

Question 4

What are the assumptions of an oligoply?

Answer 4

2-3 big firms
High barriers to entry

Question 5

What is the main thing in a perfect competition?

Answer 5

A firm’s supply curve is the where MC>AVC
In the long-run, firms product at ATC-minimizing quantity

Question 6

What is allocative efficiency?

Answer 6

Producers with low cost product in equilibrium, those with high costs are left out

Question 7

What is productive efficiency?

Answer 7

In the long run, output is produced at minimum ATC

Question 8

What is the slope of the PPC?

Answer 8

Marginal rate of transformation

Question 9

Where does productive efficiency happen?

Answer 9

Where the indifference curve in tangent to the PPC
MRS=MRT

Question 10

What are the policy responses to a monopoly?

Answer 10

Antitrust
Natural monopolies

Question 11

Are patents good to solve the inefficiency issue of monopolies?

Answer 11

Monopolies are statically inefficient but dynamically efficient
Patents encourages innovation

Question 12

What is a monopsony?

Answer 12

There is a single buyer in the market

Question 13

What is the diagram for a monopsony?

Answer 13

P and Q
S curve
MV is the demand curve
ME lies above the S curve

Question 14

What is cournot competition?

Answer 14

It is canonical
It offers an intuitive contrast with monopoly and perfect competition

Question 15

What are the assumptions of a cournot competition?

Answer 15

Firms sell identical goods
Each firm has a constant MC
Firms simultaneously choose how much quantity to sell, without know what others have chosen
All quantity is then sold at the market-clearing price