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A2 Microeconomics > Market Structures and Competitive Behaviour in Leisure Markets > Flashcards

Market Structures and Competitive Behaviour in Leisure Markets Flashcards

1
Q

What are the two different types of costs of production?

A

Short run and long run

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2
Q

What is the short run?

A

The time period when at least one factor of production is fixed in supply (usually capital)

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3
Q

What are fixed costs?

A

Costs that do not change in the short run with changes in output?

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4
Q

What are variable costs?

A

Costs that change with changes in output.

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5
Q

What is total cost?

A

The total cost of producing a given output.

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6
Q

What is average cost?

A

Total cost divided by output.

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7
Q

What is average fixed cost?

A

Total fixed cost divided by output.

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8
Q

What is average variable cost?

A

Total variable cost divided by output.

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9
Q

What can average cost be divided into?

A

AFC (Average fixed cost) and AVC (Average variable cost)

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10
Q

What is marginal cost?

A

The change in total cost resulting from changing output by one unit.

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11
Q

What is the long run?

A

The period of time when it is possible to alter all factors of production.

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12
Q

What is an economy of scale?

A

A reduction in long-run average costs resulting from an increase in the scale of production.

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13
Q

What is a diseconomy of scale?

A

An increase in long-run average costs caused by an increase in the scale of production.

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14
Q

What are internal economics of scale?

A

Economies of scale that occur within the firm as a result of its growth.

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15
Q

Purchasing economies of scale is when…

A

Firms buy in bulk - to pay less per unit purchased

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16
Q

Selling economies happens when…

A

A larger firm can make fuller use of sales and distribution facilities than a small one. (Can advertise in a more efficient way)

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17
Q

Technical economies of scale occur when…

A

Large firms can afford to use expensive, high tech equipment and use it efficiently.

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18
Q

Managerial economies of scale occur as…

A

… a firm grows in size, it becomes possible and beneficial to employ specialists.

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19
Q

Financial economies of scale happens when…

A

Large firms usually find it easier to raise finance than small firms. As banks are more willing to lend to large, well-known firms.

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20
Q

Risk-bearing economies of scale occurs as..

A

…a firm’s output rises, it can produce a greater range of products. Diversifying the product range reduces the chance of experiencing a loss, should one of the products prove to be unpopular.

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21
Q

What are external economies of scale?

A

Economies of scale that result from the growth of an industry and benefit firms within the industry.

22
Q

What are internal diseconomies of scale?

A

Diseconomies of scale experienced by a firm caused by its growth.

23
Q

What are external diseconomies of scale?

A

Diseconomies of scale resulting from the growth of the industry, affecting within the industry.

24
Q

What is average revenue?

A

Total revenue divided by the output sold.

25
Q

What is marginal revenue?

A

The change in total revenue resulting from the sale of one more unit.

26
Q

What is perfect competition?

A

A market structure with many buyers and sellers, free entry and exit and an identical product.

27
Q

What is a price taker?

A

A firm that has no influence on price.

28
Q

What is a price maker?

A

A firm that influences price when it changes its output.

29
Q

What are barriers to entry?

A

Obstacles to new firms entering a market.

30
Q

What are barriers to exit?

A

Obstacles to firms leaving a market.

31
Q

What are the three market structures that describe the level of competition that applies to the vast majority of markets?

A
  • Monopoly
  • Oligopoly
  • Monopolistic competition
32
Q

Examples of barriers to entry:

A
  • Law
  • High start up costs
  • Brand names
  • Economies of scale
  • Limit pricing
33
Q

What is limit pricing?

A

Setting a price low to discourage the entry of new firms into the market

34
Q

How might brand names affect potential entries into the market?

A

Brand names may have helped to build up brand loyalty with consumers being reluctant to try new brands

35
Q

How might high start up costs affect potential entries into the market?

A

Entrants may have difficulty raising the finance and may be concerned about the risks involved.

36
Q

How might economies of scale affect potential entries into the market?

A

Economies of scale allow large firms to enjoy low costs of production. This will mean that new entrants operating on a smaller scale will find it hard to compete.

37
Q

What are three main barriers to exit?

A
  • Sunk costs
  • Advertising expenditure
  • Contracts
38
Q

What are sunk costs?

A

Costs incurred by a firm that it cannot recover should it leave the market.

39
Q

Why might advertising expenditure affect firms leaving the market?

A

Spending on large, long-term advertising plan would be wasted should a firm leave the market.

40
Q

How might contracts affect firms leaving the market?

A

A firm may be legally obliged to supply a product for a period of time.

41
Q

What are the key characteristics of a monopoly?

A
  • Significant barriers to entry and exit
  • (In pure monopoly) The firm is the industry
  • Product is unique
  • Firm is a price maker
42
Q

What is it called when a private sector monopolist want to make as much profit as possible?

A

Profit maximisation

43
Q

When are profits maximised?

A

Where marginal revenue equals marginal cost

44
Q

What is profit maximisation?

A

Achieving the highest possible profit where marginal cost equals marginal revenue

45
Q

When does supernormal profit occur?

A

When the revenue a firm receives is greater than the cost it incurs.

46
Q

What is supernormal profit?

A

Profit earned where average revenue exceeds average cost.

47
Q

What is normal profit?

A

The level of profit needed to keep a firm in the market in the long run.

48
Q

What is a natural monopoly?

A

A market where long-run average costs are lowest when output is produced by one firm

49
Q

What are the key characteristics of an oligopoly?

A
  • Few large firms
  • High barriers to entry and exit
  • Product usually differentiated
  • Firms are price makers
  • Firms are interdependent
  • High level of non-price competition
50
Q

What does the kinked demand curve show?

A

Made up of two parts; it suggests oligopolists follow each others price reductions, but not price rises

A2 Microeconomics (5 decks)

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