Microeconomics, Part 4- Competitive and concentrated markets Flashcards
What are the different types of market (from more competition to less competition)
- Perfect competition
- Monopolistic competition
- Oligopoly
- Monopoly
What factors are used to determine the market structure?
- Number of firms
- Product differentiation
- Ease of exit/ barriers to entry
- Extent to which knowledge/ information is perfect
- Influence of individual firms/ suppliers on price
Pure monopoly definition:
Only one firm in the market. They have complete control of the market e.g. national grid
Monopoly power definition:
Firms that have the ability to influence prices e.g. Apple
What are the objectives of firms?
- Survival
- Market share maximisation
- Quality
- Brand awareness
- Growth maximisation
- Short run profit maximisation
- Long run profit maximisation
- Sales maximisation
- Corporate social responsibility (ethical, environmentally friendly, workers rights
How does spending money on machinery or advertising affect profits in the short and long run?
Profits will fall in the short run because money has to be spent. However, they will rise in the long run because the firm will be operating at a lower active cost
What do most of the objectives of firms conflict with?
Short run profit maximisation
Why do monopolies have short run profit maximisation as a goal?
They don’t have any competition so don’t have to worry about growth, quality e.t.c.
Why do firms at perfect competition have short run profit maximisation as a goal?
Their goods are exactly the same as other firms so there is no point spending money on advertising or lowering price
Features of a perfectly competitive market?
- Many small firms
- Homogeneous goods
- Large number of buyers
- Perfect knowledge
- Freedom of entry and exit to the market
- All firms are price takers
- The ability to buy or sell as much as is possible is desired at market price
- Factors of production are completely mobile
What does the supply and demand diagram look like for a monopoly
The normal one because it is the same as a whole market because it is the only firm in the market
What does the supply and demand diagram look like for an individual firm in a perfectly competitive market?
Perfectly elastic demand curve at point P which is the equilibrium price for that market.
What does the demand of an individual firm in a perfectly competitive market equal?
P and AR
What does AR stand for?
Average revenue
Factors which influence monopoly power:
- Market share of largest firm
- Barriers to entry
- The number of competitors
- Advertising
- Degree of product differentiation
- Concentration ratio
