Market Structures Flashcards
What are the conditions of a perfectly competitive market?
There is an infinite number of suppliers and consumers
Consumers & producers have perfect information
Products are homogeneous
No barriers to entry or exit
Firms are profit maximisers
In perfect competition what is a market’s demand curve?
Marginal Utility = Demand
In perfect competition what is a market’s supply curve?
Marginal cost = supply
Where is allocative efficiency in a perfectly competitive market?
When MC = MU
What will happen to supernormal profits in the long run, in perfect competition?
They will not be made by any firm
What does it mean if AR < AC?
The firm is making a loss
What happens to a firm if AR > AVC?
They can still continue to trade temporarily
What happens to a firm if AR < AVC?
The firm will leave the market immediately
What is productive efficiency?
When a firm is producing at its maximum output with the lowest possible cost
What is X-efficiency?
A measure of how successful a firms is in keeping its costs down
What assumption is made when markets are achieving productive efficiency?
That there are no economies of scale
What is dynamic efficiency?
The ability to improve productive efficiency over time
What is static efficiency?
When productive and allocative efficiency are achieved at the same time
What’s a barrier to entry?
A difficulty or expense a firm will have to face to enter a market
What are some things existing firms can do to create barriers to entry?
Patent new technology needed for the business so other firms can’t copy the design
Strong branding means existing firms are well known so customers will choose them
