Monopolistic And Oligopoly Markets

Question 1

Monopolistic: characteristics

Answer 1

Large number of firms
Entry and exit relatively easy
Consumer and producer knowledge imperfect
May have some control over price= as products are different

Question 2

Monopolistic: short run abnormal= what is happening

Answer 2

MR is inside as to sell another one it must drop. The demand curve is sloping down because the products are differentiated. Because of this the firms are to set prices slightly as no other product is perfectly identical.

Same as a monopoly graph

Question 3

Monopolistic: long run= what is happening here

Answer 3

The MR and AR curves have shifted to the left because more products enter the market the price will decrease all with the buyers.
Because of this abnormal products will change to normal profits.

Question 4

Oligopoly: closest to which market structure

Answer 4

Monopoly

Question 5

Oligopoly: characteristics

Answer 5

Few suppliers - concentration ratio
High barriers to entry and exit
Firms are inter-dependant 
Collusion 
Price stability
Non price competition

Question 6

Oligopoly why are firms inter-dependant

Answer 6

They follow each other in price so that they do not lose any market share.

Question 7

Contestable markets

Answer 7

An extension on the oligopoly theory, major difference is that the barriers to entry are not as high as perceived.

Question 8

Contestable market characteristics

Answer 8

Price stability is worse
More non- price competition
Possible collusion
Short term abnormal profits

Question 9

Why is there less price stability and more non-price competition in a Contestable market

Answer 9

As firms can enter easier they can set prices extremely low leading to price stability being poor. Because of this firms tend to use non- price competition such as advertisement to increase sales.

Question 10

Monopolistic: similar to which market

Answer 10

Perfectly competitive market

Where the conditions of perfect competition do not hold ‘imperfect competition’ will exist.

Question 11

Contestable markets: reason for the recent growth

Answer 11

Recession has lowered barriers to entry as people want a cheaper product

Technology- always changing so products are different

Deregulation and privatisation– selling things off so more firms

CMA policy- breaking up monopolies