market structures

Question 1

perfect competiton

Answer 1

a form of market
structure that
produces allocative and
productive efficiency in
long-run equilibrium

price takers, no BTE/EX, homogenous products, profit max objective, many buyers and sellers, perfect information

Question 2

barriers to entry

Answer 2

characteristic of a
market that prevents
new firms from readily
joining the market

Question 3

price taker

Answer 3

a firm that
must accept whatever
price is set in the
market as a whole

Question 4

SR supply curve (perfect comp)

for firm and industry

Answer 4

short-run
marginal cost curve
above the price at which
MC = SAVC; for the
industry, the horizontal
sum of the supply
curves of the individual
firms

Question 5

industry LR supply curve for industry (PC)

Answer 5

the curve
that is horizontal at the
minimum point of the
long-run average cost
curve

is horizontal at price P*, which is the minimum point of the long-run average cost curve for the typical firm in the industry. see pg 266

Question 6

concentration ratio

Answer 6

measure of combined market dshare of biggest 3, 4 or 5 firms in a market

Question 7

market structure

Answer 7

the way in which a market is organised in terms of certain characteristics which can be used to explain the behaviour of firms in a market

characteristics of market; behaviour –> KEY WORDS

Question 8

monopolistic competition

Answer 8

many firms, product differentiation, low BTE

mention other features when explaining

Question 9

oligopoly

Answer 9

few firms, high BTE

mention other features when explaining

Question 10

predatory pricing

Answer 10

firm sells below AVC to force higher-cost competitors out of the market

relies on being able to exploit EOS; explains why high EOS is a BTE

Question 11

limit pricing

Answer 11

firms deliberately lower prices and temporarily abandon a policy of profit maximisation to stop new firms entering a market

Question 12

non-price competition

Answer 12

firms use methods other than price to attract customers from rival producers

Question 13

price rigidity

Answer 13

prices remain unchanged despite a change in costs

Question 14

price leadership

Answer 14

the dominant firm in a market has the power to change prices such that other rivals follow this lead

tacit collusion

Question 15

cartel

Answer 15

formal agreement between firms to limit compeititon by limiting output or fixing prices to maximise joint profits

Question 16

natural monopoly

Answer 16

firm with an overwhelming cost advantage due to high FC and low MC such that it is more efficiency for it to be the single supplier in the market than for there to be multiple smaller suppliers

Question 17

contestable markets

Answer 17

where there is a THREAT of new entrants joining the market due to free entry and costless exit

contestability - is the extent to which this threat exists due to free entry and costless exist