Market Structures

Question 1

Perfect competition

Answer 1

Homogenous products
Many buyers and sellers
Normal profits in short run
Perfect information barriers to few to no barriers to entry or exit

Ads
Productively efficient- operate at minimum average cost or when minimum inputs make minimum outputs

Lowest point on AC curve

Allocatively efficient- producing what customers demand

P=MC

Dis ads

No innovation or invention due to lack of abnormal profit and existence of perfect information

Question 2

Monopolistic competition

Answer 2

Large number of producers
Similar products with slight differentiation
Low barriers to entry

Uses monopoly diagram

SR abnormal profit

LR normal profit

Question 3

Oligopoly

Answer 3

Small number of powerful firms

Interdependence

Sticky prices

Collusion
Tacit - no formal agreement but still collusive agreement
Overt- open agreement

Cartel- firms fix prices/ output between themselves

Non price competition
Product differentiation
Customer service
Loyalty bonus

Question 4

Monopoly

Answer 4

Firm that has 100% market share

Monopoly power- the power of a firm in a market to be a price maker

Can make profits In SR and LR

Barriers to entry
Economies of scale 
Natural 
Legal
Product differentiation 
Sunk costs 

Ads
Dynamically efficient leads to innovation
Economies of scale

Dis
Productive and allocative inefficiency
X inefficiency - not controlling costs
Diseconomies of scale

Question 5

Natural monopoly

Answer 5

A market where a single firm can benefit firm continuous economies of scale

In markets where the good requires a lot of expensive and late infrastructure

E.g. National grid

Question 6

Contestable markets

Answer 6

Freedom of entry and exit
No sunk costs
Perfect information
Firms produce where p=MC