Market Structures 1 Flashcards
What is a firm?
a business that sells goods or services to make a profit
What are some examples of a firm?
apple, coca-cola, nike
What is an industry?
name for all firms producing a similar product (usually using same technology)
What are some examples of an industry?
technology, soft drink, fashion
________ refers to the interactions of both producers and consumers
market
___________ refers to all features that may affect the behaviour and performance of the firms in a market
market structure
What are the four types of market structures?
- perfect competition
- monopolistic competition
- oligopoly
- monopoly
What determines what kind of market structure a market is?
- number of firms in the industry
- type of product
- ease of entry into firm
- firm’s control over price
- firms use of non-price competition (advertising)
- differentiation of product
What is each companies goal?
maximize profits
what factors may take away from a company’s ability to maximize profits?
- company morals promote charity, respect
- lack of energy from company owner
what are inputs?
factors of production
what are outputs?
product being sold
What does production technology do?
determines different combinations of inouts and outputs
Define total revenue
total income from the sales of a given quantity of good or service
How is total revenue calculated?
output (Q) x Price (P)
What is average revenue?
Amount of revenue received per unit sold
What is marginal revenue?
extra revenue derived from the sale of one more unit
What are variable costs?
costs that depend on level of production
What are fixed costs?
costs that don’t depend on firm’s level of output. The costs are incurred even if the firm is sinking
do fixed costs matter in the short run?
No, you focus on if revenue can cover variable cost
Define perfect competition
When no single consumer or producer has any greater power or influence in the market than does any other consumer or produce (level playing fields)
What are the features of perfect competition?
- free to enter and exit the industry
- homogenous product (identical so no consumer preference)
- large number of buyers and sellers (no individual seller can influence price)
- sellers are price takers (firm can alter its rate of production and sales without affecting the market price)
- perfect information is available to buyers and seller-( consumers know nature of product and price)
- market is very big and is generic
What are some examples of perfect competition?
cotton, rubber, wheat
Perfect competition is sometimes referred to as _________
free enterprise
What does a perfectly competitive market system require to work effectively?
- extensive specialization and trade
- private ownership of productive resources
- legal and social foundation
In a perfect competition average revenue = ______ = ______
marginal revenue, price
What does a demand curve for a perfectly competitive market look like?
horizontal line
What are the two big questions that firms have to ask themselves about production?
- should the firm produce at all?
2. how much should the firm produce?
What decides if a frim should produce?
a firm should not product at all if total variable costs > total revenue or if Avc > P
Where should a firm produce?
Where MR = MC
What is the shutdown price?
price at which the firm can just cover its average variable cost, and is therfore indifferent between producing and not producing
What is the difference between short run and long run?
Amount of firms entering/ leaving the industry
In the short run when should producers shut down their business?
If MR does not cover AVC
In the long run when should producers leave the industry?
if their revenue can’t meet or exceed their total costs
When would new producers want to join a perfectly competitive industry?
If their revenue can exceed their costs
In the long run when does an equilibrium occer occur?
When firms are earning zeor profit
What is the break-even price?
The price at which a firm is covering all costs but making no profit
Describe the industries in monopolistic competition?
large number of relatively small firms
What percentage of firms in canada are small or medium firms (less than 500 employees)?
99.7%
What are some characteristics of monopolistic competition?
- many small firms
- retail trade and services have some influence over prices
- spend a good deal of money advertising
- often have a unique location that may give some local monopoly power over nearby customers
Describe the industries of an oligopoly
industries with a small numer of relatively large firms
What portion of Canada’s GDP is an oligopoly?
1/3
what is the concentration ratio?
shows fraction of total market sales controlled by a specified numer of the largest sellers
