Market Structures Flashcards
What are the characteristics of a perfect competition?
- Many firms
- Homogeneous goods
- Small share of market
- Free Entry & Exit of firms
- Price-taker
What are the characteristics of a monopolistic competition?
- Many firms
- Differentiated products
- Small share of market
- Free Entry & Exit of firms
- Non-price competition
What are the key characteristics of a monopoly?
- Only one seller
- No close substitutes
- Entire market
- Barriers to entry
What are some legal barriers to entry monopolies have?
- Public Franchise
- Copyright
- Government License
- Patent
What is the natural barrier to entry monopoly?
Newbies enter it on a large scale to enjoy the economies of scale. However, having to produce at this large scale is risky and costly.
What are the key characteristics of an oligopoly?
- A small number of sellers
- Interdependence of firms
- Barriers to entry
- Big share of market
- Homogeneous/Differentiated products
What is price discrimination?
It is the practice of selling a product at more than one price to at least 2 different groups of buyers/separate markets with the price difference being unrelated to cost.
What are the three types of price discrimination?
- Perfect
- Second-Degree
- Third-Degree
What is perfect price discrimination?
The firm charges every buyer the maximum price that he/she is willing to pay for a product. (very extreme and almost does not happen irl)
What is second-degree price discrimination?
A firm charges different prices to buyers based on the quantity purchased. (eg. Buy 2 get 1 free, diff price for diff sizes)
What is third-degree price discrimination?
A firm charges different prices to different groups of buyers or different market segments.
What is the formula for total revenue?
Price x Quantity
What is the formula for average revenue?
TR / Quantity Demanded
What is the formula for marginal revenue?
Change in TR / Change in Quantity Sold
What is profit maximisation?
The marginal revenue is equal to marginal cost.
