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Economics > Microeconomics Year2 > Flashcards

Microeconomics Year2 Flashcards

1
Q

what causes a movement along the curve in the demand for labour

A

price changes (wage changes)

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2
Q

what is wage elasticity of labour demand

A

the responsiveness of demand for workers when there is a change in the wage rate

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3
Q

what factors affect wage elasticity of demand

A
  • labour costs as a percentage of total costs
  • ease and cost of factor of production substitution
  • price elasticity of demand for final products
  • time period (long run it’s easier for firms to switch factor inputs)
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4
Q

what is labour supply

A

measures the hours that people are willing and able to supply at a given wage rate

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5
Q

what is the labour supply curve towards sloping

A

as wages increase the incentive to work increases
more workers enter the industry

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6
Q

why will the supply curve of labour shift

A

-immigration
-change in the wage rate of other industries
-demographic trends
-impact of investment in education and training

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7
Q

why is the demand for labour downwards sloping

A

as the wage rate increases in an industry the demand for labour in that industry may decrease as workers are disincentivised to hire labour
firms may substitute capital for workers

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8
Q

what causes a shift in the demand for labour curve

A
  • labour being derived demand
  • productivity of labour
  • productivity of capital
  • price of capital
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9
Q

when is labour relatively elastic

A

in lower skilled jobs as a pool of labour is available to be employed at a constant market wage rate

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10
Q

when is labour relatively inelastic

A

where jobs require specific skills and training

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11
Q

why do labour markets fail

A

-geographical immobility of labour—can’t move to find work due to house prices, cost of buying and selling and family ties
-occupational immobility of labour—can’t move as workers are not skilled for the jobs available

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12
Q

how can you combat labour market immobility/failure

A

-housing subsidies
-training and education
-apprenticeship schemes

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13
Q

what is wage elasticity of supply for labour

A

measures the responsiveness of labour supply to a change in the wage rate

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14
Q

what factors influence the elasticity of supply for labour

A

-skills and training

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15
Q

what is monopsony

A

when there is a single buyer in a market

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16
Q

examples of uk monopsony

A

-nhs
-armed forces
-education
-amazon esp areas with high unemployment

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17
Q

how do monopsonies use their power

A

pay lower wages than a competitive market as workers have few if any alternatives

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18
Q

how do monopsonies cause market failure

A

-lower wages
-reduced employment as they can choose to hire fewer workers
-diminished job quality—- worse working conditions, fewer benefits, less job security—- worse wellbeing
-economic inequality-leaves workers with less ability to negotiate for higher wages, increased working poverty and rising welfare claims (that must be funded by tax payer)

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19
Q

possible interventions to correct market failure caused by monopsonies

A

-minimum wage— few people are on it anyways
-regulation and laws— allowing trade unions, outlawing gang master, equal pay legislation, employment protection laws

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20
Q

what are the different types of business organisation

A

-public limited companies– shares are traded on the stock market
-private limited companies– shares are privately owned and traded
-nationalised corporations– where the gov is the majority/sole shareholder
-social enterprises– where profits are reinvested for social projects
-co-operatives and partnerships– each member of the business has an equal state. they are employee owned firms

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21
Q

examples of uk nationalised businesses

A

-network rail
-channel 4 tv
-national air traffic service (NATS)
-ordnance survey
-royal mint
-NHS
some train operating companies like Scotrail `

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22
Q

what is the Principal Agent Problem

A

when there is a conflict of objectives between the owners (principal) and the managers (agents), who is entrusted to make decisions and take actions that will benefit the principal
the agents incentives may not perfectly align with those of the principal leading to a conflict of interests

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23
Q

what is the short run

A

atleast one fixed factor of production

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24
Q

what is the long run

A

all factors of production are variable

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25
Q

examples of fixed costs

A

rent
salaries
interest on loans

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26
Q

examples of variable costs

A

wages
utility bills
raw material costs

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27
Q

formula for TFC

A

TC - TVC
or
AFC x Quantity

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28
Q

formula for AFC

A

TFC / Quantity
AC - AVC

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29
Q

formula for AVC

A

TVC / Quantity
AC - AFC

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30
Q

shape of TFC graph

A

horizontal line

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31
Q

shape of AFC

A

downwards sloping

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32
Q

shape of AVC / what does it do

A

U shape
falls then rises

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33
Q

why does AVC fall then rise

A

falls until law of diminishing returns kicks in

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34
Q

what is the law of diminishing returns

A

when adding an additional factor of production results in a smaller increase in output than the previous addition

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35
Q

formula for MP

A

change in TP / change in quantity

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36
Q

formula for AP

A

TP / Quantity

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37
Q

shape of MP

A

rises then falls

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38
Q

shape of AP

A

rises then falls

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39
Q

what must the MP graph do

A

cut AP at its highest point

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40
Q

why does MP originally rises

A

as more workers are hired, they begin to specialise and therefore become more productive.
under-utilised fixed factors of production begin to be used more efficiently

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41
Q

why does MP fall

A

due to the law of diminishing returns
the fixed factors of production have become a constraint on production so efficiency decreases

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42
Q

shape of TP

A

rises then falls
maximised when MP is 0

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43
Q

when is TP maximised

A

when MP is 0

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44
Q

formula for MC

A

change in total cost / change in quantity

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45
Q

formula for AC

A

TC / Quantity
or
AFC + AVC

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46
Q

shape of MC

A

falls then rises
cuts AC at AC’s lowest point

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47
Q

shape of AC

A

falls then rises
u shape
is cut by MC at its lowest point

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48
Q

when does MC cut AC

A

at its lowest point

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49
Q

why does MC fall

A

because as MP rises, due to specialisation and utilisation of factors of production, MC falls

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50
Q

why does MC rise

A

the law of diminishing returns kicks in as MP falls meaning MC rises as the fixed factors of production constraints production

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51
Q

shape of TC curve

A

like the tan graph

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52
Q

shape of TVC curve

A

like the tan graph

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53
Q

shape of TFC

A

horizontal line

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54
Q

why do the TVC and TC curves become steeper

A

they go from increasing returns to labour TO decreasing returns to labour

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55
Q

shape of LRAC

A

U shape
falls, plateaus, rises

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56
Q

why does the LRAC curve fall

A

economies of scale

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57
Q

why does the LRAC curve plateau

A

constant returns to scale

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58
Q

why does the LRAC curve rise

A

diseconomies of scale

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59
Q

what is Minimum Efficiency Scale (MES)

A

the lowest level of output required to exploit full economies of scale

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60
Q

where is the MES

A

where LRAC stops falling

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61
Q

what are economies of scale

A

a reduction in LRAC as output increases

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62
Q

what is the mnemonic the remember the internal economies of scale

A

Really Fun Mum’s Try Making Pies

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63
Q

what are the internal economies of scale

A

Risk bearing - new parts of the company are less risky
Financial - negotiate lower interest on loans
Managerial - can hire specialist managers
Technical - specialist machinery
Marketing - can bulk by advertising and less is needed
Purchasing - can bulk by resources which is cheaper

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64
Q

types of external economies of scale

A

-better transport infrastructure
-component supplies move closer
-research and development firms more closer

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65
Q

what are diseconomies of scale

A

an increase in LRAC as output increases

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66
Q

what are the types of diseconomies of scale

A

Control - difficult to monitor workers, they can slack off, less productivity
Communication - more difficult to communicate across the company
Co-ordination - difficult for different parts of the company/ departments to work efficiently alongside each other
Motivation - workers feel less valued, motivation falls, productivity falls

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67
Q

what are the 2 types of economies of scale

A

external
internal

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68
Q

formula for TR

A

P x Q

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69
Q

formula for AR

A

TR / Q = P

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70
Q

formula for MR

A

change in total revenue / change in total quantity

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71
Q

shape of AR in perfect competition

A

horizontal

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72
Q

shape of TR in perfect competition

A

linear

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73
Q

shape of AR in imperfect competition

A

downwards straight line

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74
Q

shape of MR in imperfect competition

A

downwards straight line twice as steep as AR

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75
Q

shape of TR in imperfect competition

A

rises then falls when MR is at 0

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76
Q

what is average revenue (AR) the same as on a graph

A

demand

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77
Q

when is total revenue maximised

A

when MR = 0

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78
Q

what causes a change in price/profit levels

A

fixed costs
variable costs
demand

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79
Q

what will a change in fixed costs shift

A

AC

80
Q

what will a change in variable costs shift

A

AC and MC

81
Q

what will a change in demand shift on costs and revenues diagram

A

AR and MR

82
Q

formula accounting profit

A

TR - TC

83
Q

formula for economic profit

A

TR - TC (inc opportunity cost)

84
Q

what is normal profit

A

the minimum amount of profit a firm must receive to carry on producing
or
the minimum level of reward necessary to ensure that existing entrepreneurs want to remain in production
profit = 0

85
Q

what is supernormal profit

A

any profit greater than normal profit
profit > 0

86
Q

how do you tell whether it is normal or supernormal profit

A

normal : TR - TC = 0
supernormal : TR - TC > 0

87
Q

when are sales maximised

A

where AR = AC

88
Q

why might a firm want to profit maximise

A
  • keep shareholders happy
  • reinvest to grow
89
Q

why might a firm want to revenue maximise

A
  • managers might get a bonus
  • prestige
90
Q

why might a firm want to sales maximise

A
  • increase market share
91
Q

why might a firm want to be satisficing

A
  • keep entrepreneurs and shareholders happy while being able to pursue other objectives
92
Q

what is satisficing

A

when a business makes enough profit to keep shareholders happy but does not maximise it so it can focus on other objectives

93
Q

what are the possible business objectives

A

-profit maximisation
-revenue maximisation
-sales maximisation
-satisficing

94
Q

what are the characteristics of perfect competition

A

-many buyers and sellers
-homogenous goods
-firms are price takers
-no barriers to entry and exit
-perfect information

95
Q

what are the characteristics of imperfect competition

A

-few buyers and sellers
-differentiated goods
-firms are price makers
-high barriers to entry and exit
-imperfect information

96
Q

what are x-inefficiencies

A

managers allow costs to rise above their most efficient level through a lack of focus

97
Q

why might the principle agent problem lead to rising costs and inefficiency in firms

A

-managers may be profit satisficing
-so they are earning enough profit to keep shareholders happy and also focus on other objectives
-this may mean that managers may not keep a close enough eye on costs and allow X-inefficiencies to arise

98
Q

how might the principle agent problem contribute to poor decision making by managers

A

-senior managers might pursue aggressive growth in size and market share - likely through mergers and takeovers for more power and prestige or personal bonuses
-this might not be in the shareholders interest as it could lead to: diseconomies of scale, ill-advised mergers and takeovers may lack expected benefits, excessive risk taking and cost-cutting may make short term profit but worsen long term performance

99
Q

what are 2 solutions to the principle agent problem

A

-share bonus schemes
-managers get rewards if profits
exceed a target
-but high dividends in short run
may mean a lack of invest and
growth
-it may encourage high risks in
short term leading to losses in
the long term
-non-executive directors on the
board of the company
-represent the wishes of owners
but are not part of the day to day
running of the business so are
unbiased
-senior managers usually control
who is proposed to be on the
board and there is a danger of
them being close friends and
therefore biased

100
Q

examples of barriers to entry

A

-high capital costs
-control by incumbents of distribution networks and channels
-control of sources of inputs by incumbents
-legal and regulatory barriers
-economies of scale
-sales maximisation
-predatory pricing

101
Q

examples of barriers to exit

A

-sunk costs e.g R&D, marketing
-subsidies and regulatory obligations

102
Q

in the long run, what kind of profits can a firm in a perfectly competitive market make

A

normal profits

103
Q

what are the 5 different types of business growth

A

organic
horizontal integration
forward vertical integration
backward vertical integration
conglomerate integration

104
Q

what is organic growth

A

growth through reinvesting retained profits, borrowing and/or selling shares

105
Q

what type of growth is it through reinvesting retained profits, borrowing and/or selling shares

A

organic growth

106
Q

what are the advantages and disadvantages of organic growth

A

-low levels of risk as it is gradual and remains in a familiar industry

-growth can be slow

107
Q

what is horizontal integration

A

merging with a firm in the same industry and stage of production

108
Q

what type of growth is it through merging with a firm in the same industry and stage of production

A

horizontal integration

109
Q

what are the advantages and disadvantages of horizontal integration

A

-increased market share leads to economies of scale
-greater market power to set prices

-diseconomies of scale due to issues like culture clashes between the merged firms

110
Q

what is forward vertical integration

A

merging with a firm in the same industry and a later stage in the production process

111
Q

what type of growth is it when a firm merges with a firm in the same industry and a later stage in the production process

A

forward vertical integration

112
Q

what are the advantages and disadvantages of forward vertical integration

A

-control of outlets - easier to co-ordinate production and distribution so increased efficiency
-cut out middleman e.g transport to lower costs

-diseconomies of scale e.g coordination if firm becomes too big
-firm may not have any expertise in the next stage of production process leading to inefficiencies

113
Q

what is backward vertical integration

A

merging with a firm in the same industry and at an earlier stage of production

114
Q

what type of growth is it when a firm merges with a firm in the same industry and at an earlier stage of production

A

backward vertical integration

115
Q

what are the advantages and disadvantages of backward vertical integration

A

-gain control of inputs and therefore guarantees supply
-cuts out middleman thus lowering costs

-diseconomies of scale e.g coordination as business is bigger and more difficult to manage
-firm may not have any expertise in the previous stage of production process leading to inefficiencies

116
Q

what is conglomerate integration

A

merging with a firm in a completely different industry

117
Q

what kind of growth is it when a firm merges with a firm in a completely different industry

A

conglomerate integration

118
Q

what are the advantages and disadvantages of conglomerate integration

A

-diversification - lowers the risk incase demand falls in one part of their business

-high risk - firm may not have the expertise to go into a new market leading to inefficiencies
-if a venture fails it could damage the overall brand of the firm

119
Q

factors that can constrain business growth

A

-size of the market (if a market is too small there would be no demand for the product leading to inefficiencies)
-access to finance
-owner objectives (e.g the firms objective may to be profit satisficing hence dont want to grow)
-regulation (competition authorities can stop mergers and force firms to demerge)

120
Q

what is a demerger

A

when a firm either sells off its subsidiaries (parts of the business) or divides itself into two or more firms

121
Q

why might firms demerge

A

-raise finance
-improve managerial control
-reduce or avoid diseconomies of scale
-increase profitability
-forced to by the competition authorities

122
Q

what are the impacts of demergers on
-consumers
-firms
-workers

A

-consumers - greater competition should lead to lower prices, more choice, better quality and therefore increased consumer satisfaction

-firms - short term a reduction in revenue and profits but in the long run increased efficiency and therefore profits

-workers - demerged firms are likely to have less hierarchical organisational structure meaning that there could be job losses and demotivation during the demerger

123
Q

where is a firms short run shut down point

A

AR=AVC

124
Q

when should a firm shut down immediately

A

when the price doesn’t cover AVC as each unit produced is only contributing to a loss

125
Q

when can a firm continue to produce in the short term

A

when the price covers the AVC (is above AVC) as each unit sold will be making a contribution towards the fixed costs

126
Q

if a firm wants to operate in the long run what must the price cover

A

AC - both fixed and variable

127
Q

where is a firm’s long term shut down point

A

where AR=AC

128
Q

what is allocative efficiency

A

the allocation of resources matches consumer preferences

129
Q

where is allocative efficiency

A

AR=MC

130
Q

what is productive efficiency

A

when a firm minimises its average costs of production

131
Q

where is productive efficiency

A

MC=AC

132
Q

what is a firm deemed if it is not productively efficient

A

x-inefficient

133
Q

what is static inefficiency

A

efficiency at a point of time which ignores that change occurs over time

134
Q

what are the types of static efficiency

A

allocative
productive

135
Q

what is dynamic efficiency

A

efficiency over a period of time where it invest in R&D, and physical and human capital

136
Q

what type of efficiencies do perfectly competitive markets achieve

A

productive efficiency
allocative efficiency
(static efficiencies)

137
Q

what type of efficiency do perfectly competitive markets not achieve and why

A

dynamic efficiency because they only make normal profits so do not have enough to invest

138
Q

what type of efficiency do monopoly and oligopoly markets achieve and why

A

dynamic efficiency because they have supernormal profits that they can use to reinvest

139
Q

what type of efficiencies do monopoly and oligopoly markets not achieve

A

productive efficiency
allocative efficiency
(static efficiencies)

140
Q

what is monopoly

A

a single supplier that constitutes the entire industry

141
Q

what is the UK’s legal definition of monopoly

A

a firm that has 25% or more of the market share for an industry

142
Q

what are the characteristics of monopoly

A

-only one firm in the industry
-high barriers to entry
-price maker
-profit maximiser

143
Q

what is monopolistic competition

A

a market structure where each firm is a small part of the total industry

144
Q

what are the characteristics of monopolistic competition

A

-large number of buyers and sellers
-low barriers to entry and exit
-perfect knowledge
-slightly differentiated product

145
Q

is the demand curve for monopolistic competition more or less elastic than for monopoly and perfect competition

A

more elastic than monopoly
less elastic than perfect competition

146
Q

can a firm in the long run make supernormal profits? why?

A

no as supernormal profits will attract new entrants to the market causing prices to fall

147
Q

what is oligopoly

A

an industry or market that is dominated by a few firms

148
Q

what are the characteristics of oligopoly

A

-high barriers to entry
-high market concentration ratios
-price maker
-collusive behaviour
-interdependence of firms

149
Q

what is the concentration ratio

A

it measures the percentage of output or sales of a group of firms in a given industry.

150
Q

what is overt (formal) collusion

A

firms sign an open agreement fixing either price or output or both
aka cartel

151
Q

what is an example of overt collusion (cartel)

A

OPEC - cartel of 12 oil producing nations who aim to safeguard the income of the members by controlling supply

152
Q

what is covert collusion

A

where firms meet secretly and agree to set prices or output level

153
Q

what are two examples of covert collusion

A

-sainsbury’s and asda fined for colluding to fix the price of milk and dairy products

-BA fined for price fixing fuel surcharges with virgin

154
Q

what is tacit collusion

A

where there is no formal agreement to keep prices stable but firms operate in a manner that suggests collusion

155
Q

what is the game theory example

A

two companies, X and Y, are the only sellers of a product, both with 50% market share
-Y charges £2.00 and X charges £2.00 both get £10million
-Y charges £1.80 and X charges £2.00 Y gets £12million and X gets £5million
-X charges £1.80 and Y charges £2.00 X gets £12million and Y gets £5million
-X and Y charge £1.80 they both get £8million

dominant strategy is to charge the lower price

both firms have the incentive to covertly collude and keep the price at £2 or they could tacitly collude
but both firms still have the incentive to be the first to move to the lower price.
this could only be sustained in the short term leading both worse off in the long run as the other firm would also cut prices
could lead to a price war

156
Q

what are some limitations of game theory

A

-only show effects of one round
-only shows two players
-focuses on price strategy when in reality there are many price and non-price strategies a firm can pursue

157
Q

what do the CMA (competition and markets authority) investigate

A

-formal cartels
-price fixing
-monopoly power

158
Q

what can the results of a CMA investigation be

A

-fines
-prosecution of individuals
-blocking a merger

159
Q

what are the objectives of the CMA

A
  • increase competition
    -penalise anti competitive behaviour
    -appoint regulators for natural lacks of competition
160
Q

examples of mergers blocked by the CMA

A

-Asda and Sainsbury’s –> to stop price rises and consumer experience falling –> consumer welfare
-Microsoft and Activision –> to stop a lack of innovation

161
Q

what is a benefit of blocking mergers

A

protected consumer welfare via keeping prices low and choices high

162
Q

what are the disadvantages of blocking mergers

A

-a merger could increase consumer welfare as lower LRAC via economies of scale could mean higher profits and therefore innovation
-investigations can take a long time and create an opportunity cost or the time and money spent

163
Q

example of when the CMA imposed a fine

A

£10 million for owners and manufacturers of thyroid tablet

164
Q

what are the 3 ways governments intervene to control monopolies

A
  • price regulation (RPI - X)
    -profit regulation
    -quality standards and performance targets
165
Q

how does price regulation work to control monopolies

A

-limits the price rises of an industry
-RPI is the annual increase in inflation
-X is the regulators view of potential efficiency savings the firm can make

166
Q

how does profit regulation work as a way to control monopolies

A

if overall profits are deemed to high the regulator can force the firm to cut its prices or recommend the gov imposes a windfall tax

167
Q

how do quality standards and performance targets control monopolies

A

firms can be fined if the standard falls below a certain level

168
Q

what are the problems of government intervention to control monopolies

A

-regulatory capture –> regulator becomes sympathetic to firms
-asymmetric info –> no incentive for firms to be truthful when they know more than the regulator
-fines may not be large enough to disincentivise poor standards or performance

169
Q

what are the 5 ways governments can intervene to promote competition and contestability

A

-promotion of small businesses
-reducing barriers to entry
-deregulation
-competitive tendering for gov contracts
-privatisation

170
Q

how can the promotion of small businesses promote competition and contestability

A

-subsidies and easier access to finance makes it easier to enter an industry
-increased supply –> lower prices –> increased choice –> increased consumer welfare

171
Q

how do reducing barriers to entry promote competition and contestability

A

-reducing the length of patents encourages new firms to enter

172
Q

how does deregulation promote competition and contestability

A

-easier for new firms to enter –> more competition –> lower prices –> more choice –> increased consumer welfare

173
Q

how does competitive tendering for gov contracts promote competition and contestability

A

-bidding for the right to provide a service (e.g a school canteen) means that the contract is given to the firm offering best value for consumers

174
Q

how does privatisation promote competition and contestability

A

firms will profit maximise leading to greater efficiencies and increased consumer welfare

175
Q

what are the problems with
-the promotion of small businesses
-reducing barriers to entry
-competitive tendering
-privatisation
as a way to promote competition and contestability

A

-subsidies could be wasted if given to inefficient start ups
-reducing patent lengths may reduce incentive for innovation
-competitive tendering may mean firms only bid for profitable services e.g a bus route in city vs in rural area
-privatisation often occurs for natural monopolies so the lack of competition and inelastic demand means they can charge high prices

176
Q

what are the 2 ways government intervene to protect suppliers and employees

A

-restrictions on monopsony power of firms
-nationalisation

177
Q

how do restrictions on monopsony power of firms help to protect suppliers and employees

A

-CMA investigations mean they can fine guilty firms e.g ASDA, Tesco and Sainsbury’s for exploiting dairy farmers

178
Q

how does nationalisation help to protect suppliers and employees

A

-protects jobs
-could increase consumer behaviour
e.g Northern Rock (2007)

179
Q

why is government intervention to protect suppliers and employees not always effective

A

-fines don’t compensate the suppliers effected
-fines may not be large enough
-nationalised firms have less incentive to be efficient with costs and to innovate so could lead to decreased consumer welfare
-nationalisation is very expensive so creates an opportunity cost

180
Q

what is a contestable market

A

where there is freedom of entry to industry and where cots of exit are low

181
Q

what makes a perfectly contestable market

A

no sunk costs enabling hit and run entry

182
Q

what is hit and run entry

A

when a competitor is attracted to enter the market and earn supernormal profits but leaves as soon as profits are eroded by competition

183
Q

what are the factors that determine the degree of contestablity

A

-technological change–> can make it easier to start up but can also lead to sunk costs if tech is constantly changing
-sunk costs
-limit pricing–>incumbents can discourage new entrants by keeping prices very low
-evidence of new entrants–>if there have been new entrants it is more contestable

184
Q

what is predatory pricing

A

when a firm sells a good or service below the AVC of production in order to remove a competitor from the industry

185
Q

what is limit pricing

A

when a firm sets a price below the AC of new entrants to deter new entrants from entering the industry

186
Q

what are the 4 non-price competition strategies in oligopolistic markets

A

-advertising
-product differentiation and innovation
-branding
-consumer loyalty cards

187
Q

why do oligopolistic markets use non-price strategies

A

to avoid price wars

188
Q

how does advertising work as a non-price strategy in an oligopolistic market
and
what is a problem with it

A

increased awareness of product –> increases demand –> shifts demand/AR out –> increased revenue and profits

it is a large sunk cost
increased demand is not guaranteed

189
Q

how does product differentiation and innovation work as a non-price strategy in an oligopolistic market
and
what is a problem with it

A

updating product ranges keeps them ahead of competition
innovated products make them more appealing to customers

very expensive and there are time lags due to research and testing

190
Q

how does branding work as a non-price strategy in an oligopolistic market
and
what is a problem with it

A

strong brand image (e.g via celebrity endorsements) and customer loyalty makes demand inelastic so firms can charge higher prices

brand image is expensive to create and takes a long time to establish
it can easily be damaged

191
Q

how do customer loyalty cards work as a non-price strategy in an oligopolistic market

A

encourages repeat visits via rewards
helps get customer info about spending habits

192
Q

what is third degree price discrimination

A

charging different groups of consumers different prices for the same good or service
e.g cinema tickets, train fares

193
Q

what are the conditions for third degree price discrimination

A

-the firm must have market power
-the firm must be able to separate the market e.g by gender, age
-the buyers must have different price elasticities of demand
-the firm must be able to prevent resale and leakage

194
Q

what are the benefits of monopoly

A

-research and development–>high supernormal profits can be invested in R&D–>improved quality–>increased consumer welfare
-economies of scale–>lower cost per output–>lower prices for consumers–>increased consumer welfare
-employment–>often large employers–>have hierarchical organisation–>better career prospects
-international competitiveness–>can compete abroad–>increased UK competitivity

195
Q

what are the costs of monopoly

A

-consumer welfare–>often means higher prices and price discrimination
-not allocatively efficient–>AR>MC–>demand is not met by supply
-not productively efficient–>don’t produce at lowest point of AC–>higher prices for consumers
-x-inefficiencies–>higher prices
-delays entrepreneurs with new ideas entering the market
-monopsony buying power

Economics (6 decks)

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