Market structures

Question 1

What are the conditions of perfect competition

Answer 1

• Many buyers and sellers
• Homogenous goods
• No barriers to entry/exit
• perfect information
  -Firms are profit maximisers

Question 2

What profits are firms in perfect competition producing (long run)

Answer 2

Normal profits

Question 3

What are the efficiencies of perfect competition

Answer 3

• Allocative
• X
• Productive

Question 4

Why are firms in perfect competition not dynamically efficient

Answer 4

Firms are not producing supernormal profits, therefor can not reinvest profits. (little innovation)

Question 5

Draw a diagram to show a firm in perfect competition (LR)

Question 6

What are barriers to entry

Answer 6

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

Question 7

What is a price taker

Answer 7

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

Question 8

What are the conditions of monopolistic competition

Answer 8

• Many buyers and sellers
• Slightly differentiated good
• Firms are price makers
• Price elastic Demand
• Low barriers to entry/exit
• Good information
• Non price competition
• Firms are profit maximisers

Question 9

Name some examples of industries with monopolistic competition

Answer 9

Bars, hairdressers, salons

Question 10

Draw a firm in monopolistic competition - SR

Question 11

Draw a firm in monopolistic competition - LR

Question 12

Efficiencies in monopolistic competition

Answer 12

Not allocative
Not productive
Not dynamic

Question 13

Benefits of monopolistic competition

Answer 13

Less price exploitation
Consumers have more choice

Question 14

What are the characteristics of an oligopoly

Answer 14

• High barriers to entry/exit
• High concentration ratio (few dominant firms)
• Interdependence of firms
• Product differentiation

Question 15

What is a competitive oligpoly

Answer 15

Firms using price/non price competition

Question 16

What is a collusive oligopoly

Answer 16

Occurs when firms agree to work together eg. price fixing or restricting output

Question 17

Factors promoting competitive oligpoly

Answer 17

1. Large number of firms (less concentrated)
2. One firm has a cost advantage.
3. New market entry possible
4. Homogenous goods

Question 18

Factors promoting a collusive oligopoly

Answer 18

1. Small number of firms (higher concentration)
2. Similar costs
3. Product differentiation
4. Consumer loyalty

Question 19

Draw a kinked Demand curve (oligpoly)

Question 20

What is a cartel

Answer 20

An agreement between firms on price and output with the intention of maximising their joint profits

Question 21

Overt collusion

Answer 21

A situation in which firms openly work together to agree on prices or market shares

Question 22

Tacit collusion

Answer 22

Situation occurring when firms refrain from competing on price, but without communication or formal agreement

Question 23

Non price competition

Answer 23

Steps that firms can take to compete with rival firms other then on price eg. advertising or product differentiation