Market Strucutres

Question 1

Perfect Competition (4)

Answer 1

1. Many sellers
2. Homogenous products
3. Free entry & exit the market
4. Decides upon the quantity not the price
   (MR=MC)

Question 2

Monopolistic Competition (5)

Answer 2

1. Many small sellers
2. Homogenous products
3. Free to enter & exit the market
4. Decide on the price and the quantity (MR=MC/P doesn’t = MR)
5. Monopolistic niche

Question 3

Monopolistic Competition graph(2)

Answer 3

· both Demand and MR are more elastic than the monopoly
· consider short rather than long run (less products at higher prices)

Question 4

Oligopoly (4)

Answer 4

1. Few sellers
2. (in) different products
3. Competition or collusion (agree on prices)
4. Mutually dependent

Question 5

Oligopoly & Game Theory (2)

Answer 5

· based on the prisoner’s dilemma, this market structure can be studied by considering whether firms keep or break agreements.
· Nash equilibrium is a non cooperative equilibrium clashing with individual and group rationality

Question 6

Monopoly (4)

Answer 6

1. One seller having market power
2. No substitutes
3. Barriers to enter & exit the market
4. Determines price & quantity
   (MR=MC / P doesn’t = MR)

Question 7

Steps to analyse Market Structure graphs (4)

Answer 7

1. Optimisation Rule: look for MR=MC
2. Total Revenue: p1 x q1
3. Total Cost: intersection of q1 on ATC
4. Total Profit: TR-TC

Question 8

Natural Monopoly

Answer 8

a monopoly arising because a single firm can supply a good to an entire market at a smaller cost that could two or more firms.