Market Structures and their short and long run Flashcards
Economists usually prefer to have _____ market.
competitive
a place where two parties can gather to facilitate the exchange of goods and services.
Market
Market could be ____ or ____
Physical or Virtual
may entail the exchange of commodity, service, information, or currency or any combination of these.
Market Transaction
Only two parties are required to perform _____. Nevertheless, a third party is required to promote _____ and restore _____ _____.
transaction
competition
market balance.
depicts how firms are differentiated and categorized based on types of goods they sell (homogeneous, heterogeneous) and how their operations are affected by external factors and elements.
Market structure
Profit Maximization for short run and long run analyses
MR = MC
the ideal market system in which all producers and consumers have complete and symmetric knowledge, there are no transaction costs, and a large number of producers and customers compete against one another.
Perfect Competition
Characteristics of Perfect Competition
Large number of buyers and sellers Homogeneous Product Firms is a Price Taker Free Entry and Exit Perfect Knowledge Perfect Mobility No Selling Costs Perfectly elastic demand curve
Economic profit of Perfect Competitive Markets in the short run
could be positive, zero, or negative
Economic profit of Perfect Competitive Markets in the long run
zero
Perfectly Competitive market the long run equilibrium
Intersection of demand curve, price, marginal revenue, and minimum of ATC
a market situation in which there is only one seller of a product with barriers to entry of others. The product has no close substitutes. The cross elasticity of demand with every other product is very low. This means that no other firms produce a similar product.
Monopoly
Characteristics of Monopoly
Single Seller
No Close Substitute
High levels of barriers to entry due. Three main sources: Monopoly resources, government regulation, and production process.
Price Maker
Price Discrimination
Demand Curve is less elastic due since no competition is present
More output is sold, so Q is higher, which tends to increase total revenue
Output Effect
The price falls, so P is lower, which tends to decrease total revenue
Price Effect
When Price effect on revenue is greater than the output effect the marginal revenue is
Negative
When Output effect on revenue is greater than the Price effect the marginal revenue is
Positive
occurs because the monopolist produces less than the socially efficient quantity of output,
Inefficiency of Monopoly
the area between the monopoly price, efficient quantity, and monopoly quantity, wherein the consumers value the products more than the cost of producing of the product.
Deadweight Loss
a market situation in which there are a few firms selling homogeneous or differentiated products. It is difficult to pinpoint the number of firms in “competition among the few”. With only a few firms in the market, the action of one firm is likely to affect the others.
Oligopoly
Characteristics of Oligopoly
Few Sellers High Barriers to Entry and exit Differentiated Products Price Maker Interdependent Selling Costs Group Behavior Kinked Demand Curve (Less elastic)
is called cartel wherein firms cooperate with each other and make common policies for all the firms. The group of firms behaves like a monopoly thus gaining supernormal profits.
Collusive Oligopoly
Oligopolistic firms do not cooperate and engage in competition with each other. Firms drive price levels and profit levels down to the level of normal profit only.
Non-collusive Oligopoly
a situation where economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen.
Nash Equilibrium
drives firms to occupy more market power than the other firms to have greater economic profit.
Self-interest
is the best strategy for a player in a game regardless of the strategies chosen by other players.
Dominant Strategy
Economic profit of Monopoly in the long run
Positive, zero, or negative
Economic profit of Monopoly in the short run
Positive, zero, or negative
Economic profit of Oligopoly in the short run
Positive, zero, or negative
Economic profit of Oligopoly in the long run
Positive, zero, or negative if colluding cartels hold together
Refers to a market situation where there are many firms selling a differentiated product. “There is competition which is keen, though not perfect, among many firms making very similar products”. No firm can have any perceptible influence on the price-output policies of the other sellers nor can it be influenced much by their actions.
Monopolistic Competition
Characteristics of Monopolistic Competition
Large number of buyers and sellers Low Barriers to Entry and Exit Some degree of price control Small Product-Differentiation Highly elastic demand yet not perfect
Economic profit of Monopolistic Competition in the long run
Zero Economic Profit
Economic profit of Monopolistic Competition in the short run
Positive, zero, or negative
where MC and ATC are equal and it is defined as ATC being minimum and constant.
Efficient Scale
the difference between the efficient scale and the quantity produced which is based in the point of tangency of the demand curve (AR) to the ATC curve.
Excess Capacity
the intersection of the demand curve (AR curve) and the MC curve
Efficient quantity
