Microeco 2.5

Question 1

Characteristics of perfect competition

Answer 1

A large number of small firms
Homogenous products
No barrier to entry or exit
Perfect information
Price takers

Question 2

Characteristics of monopolistic competition

Answer 2

Large number of small firms
Non-homogenous but similar products
Low barriers to entry and exit
Imperfect information

Question 3

What profit do firms make in monopolistic competition

Answer 3

Supernormal in the short run but normal in the long run

Question 4

Characteristics of oligopoly

Answer 4

Small number of big firms in the market
Product differentiation
Imperfect information
High barriers to entry and exit

Question 5

What is collusion

Answer 5

Cooperation between firms to restrict competition

Question 6

3 types of price competition

Answer 6

Price wars
Predatory pricing
Limit pricing

Question 7

How is the efficiency of oligopolies

Answer 7

Oligopolies are neither productively or allocatively efficient

Question 8

Monopoly characteristics

Answer 8

Just one firm in the market
Imperfect information
High barriers
Price maker

Question 9

Conditions for price discrimination to occur

Answer 9

Firm should have enough power (monopoly)
Firm should be able to differentiate between different markets
Consumers should not be able to sell the products to an another

Question 10

Advantages of price discrimination

Answer 10

Higher profits
Higher salaries for workers
Some groups benefit from lower prices

Question 11

Disadvantages of price discrimination

Answer 11

Cost of enforcing price discrimination (ID checkers)

Some groups have to pay more

Question 12

Advantages of monopolies

Answer 12

Greater profits
Economies of scale
Dynamic efficiency (better products)
Natural monopolies

Question 13

Disadvantages of monopolies

Answer 13

Higher prices
Lower output = Allocatively inefficient
Productively inefficient
X-inefficiency
Hard for smaller firms to enter the market (less choice)
Price discrimination reduces consumer surplus

Question 14

What is a monopsony

Answer 14

Where there is just one buyer in the industry

Question 15

Characteristics of monopsony

Answer 15

Higher barriers to entry

Monopsonies are profit maximisers

Question 16

Advantages of monopsony

Answer 16

Lower raw material prices = Lower price of products
Monopsony earns more profit
Higher profit = Higher wages for workers of monopsony

Question 17

Disadvantages of monopsony

Answer 17

Suppliers may stop making a profit -> Unemployment

Supplier may have to reduce quality of products to maintain profits

Question 18

Characteristics of contestable markets

Answer 18

Low sunk costs
Low barriers to entry and exit
Same access to technology
No firms benefit from consumer loyalty

Question 19

Types of barriers to entry and exit

Answer 19

High sunk costs (Advertising costs)
Copyrights
Pricing strategies
Economies of scale