Market structures Flashcards
1
Q
Perfect competition
A
- many buyers and many sellers
- homogenous product. firms are price takers
- no barriers to entry or exit.
- perfect information available to consumers
2
Q
Profit maximisation point
A
MR=MC. Extra unit beyond this point will have a higher marginal cost than revenue gained.
3
Q
Supernormal profit
A
When a firm earns more profit than it needs to cover costs. Inefficient as it has a smaller total surplus than normal profits. Often caused by witheld supply
4
Q
Monopoly
A
- One firm
- Unique product
- Price setters
- Blocked entry to market
5
Q
Oligopoly
A
- Few firms
- Some product differentiation
- Interdependence
- High barriers to entry
6
Q
Monopolistic competition
A
- many firms
- some product differentiation
- less market power than oligopoly
- inefficient, supernormal profits in short run.
7
Q
Sources of market power
A
- Input control
- Patents
- Legal barriers
- Economies of scale
- Network economies
8
Q
First degree price discrimination
A
- Theoretical
- Monopolist is aware of everyone’s willingness to pay and charges the exact price.
- Technically efficient as the producer receives maximum surplus.
9
Q
Second degree price discrimination
A
- Monopolist aware of different willingness to pay
- Price schedule offered to all and they self select
- Some people don’t have time to find discounts so they pay full price.
10
Q
Third degree price discrimination
A
- monopolist doesn’t know willingness to pay
- different prices based on characteristics
- student discount
