Microeconomics- Competitive and Concentrated Markets

Question 1

What are some objectives for firms?

Answer 1

Profit maximisation- the traditional theory of the firm; make as much profit as possible.

Profit Satisficing- making a satisfactory amount of profit (more realistic than profit maximisation)

Maximise market share- increase monopoly power, can push out smaller firms

Survival- usually an aim of new firms or firms during a recession

Maximise sales revenue- attempting to sell as many products as possible

Altruism- when a firm aims to help people, usually the main aim of non- profit firms like charities

Question 2

How do you distinguish between different market structures?

Answer 2

By the number of firms in the market
By the barriers for entry and exit in a market
If firms are are price makers or price takers

Question 3

What are the 6 conditions for a perfectly competitive market?

Answer 3

1. Large number of buyers and sellers in the market
2. The product is homogenous
3. Buyers and sellers possess perfect information about the market
4. Each consumer can buy and sell as much as they want at the market price
5. No long term barriers to entry or exit
6. Firms are price takers

Question 4

What are the different types of entry barriers?

Answer 4

Artificial- set up by humans, e.g. laws and regulations, patents, limit pricing

Natural- occurs from market conditions e.g. Economies of scale, language barriers, climate

Question 5

What are the types of monopoly?

Answer 5

Legal monopoly- a firm that has ≥ 25% market share (allowing them to have monopoly power)

Pure monopoly- When there is only one firm in the market