Monopoly oligopoly and collusion

Question 1

Divorce of ownership and control

Answer 1

The growth of PLCS have led to vast amounts of financial capital being raised to fund modern cooperation D which had led to a growth in the number of shareholders who have out their money into the firm to max profit

Question 2

Monopoly power economies

Answer 2

Monopolies exploit economies of scale so that there is no firm or potential entrant producing at a lower cost

Question 3

Reason for revenue max

Answer 3

Managers may receive sales related bonuses and managers might increase sales up to the point where MR=0 and total revenue is maximised

Question 4

Inability to profit maximise

Answer 4

Assumes that firms have perfect information about costs and benefits of each option and make a rational choice

Question 5

Rational choice hairy

Answer 5

Where all costs and benefits are considered before a decision is taken

Question 6

Problems of profit max

Answer 6

Experiment in price is needed until they find profit max shich would lead to a loss of custom for other firms

Natural time lag between accumulating and processing information which means that important decisions may be made too late to profit max

Question 7

Firms are likely to satisfied as opposed to max because

Answer 7

they will not waste resources and seek optimal solution if shareholders are happy

Question 8

Organisational theory

Profit max is not

Answer 8

the major driving force of a firm so output can be selected that ensures the product will achieve market penetration rather than pm

Question 9

Long run profit maximisation

Answer 9

Neoclassical theory suggests that firms will react to every shift in the market and alter price and output accordingly

Question 10

Profit maximisation suggests

Answer 10

all firms react in the same way and we accept some firms may respond differently

There is pressure in the short run to keep shareholders happy and maintain the price of company shares

Question 11

Kinked remand curve

Answer 11

Price increases are elastic

Price few creases are inelastic

Question 12

Cutting competition is a trade off with

Answer 12

Allocative efficiency

Question 13

Interdependent

Answer 13

when the actions of one firm impact the sales and revenues of anther

Question 14

Reactive behaviour

Answer 14

oligopoly, the action taken by one firm is in response to a change in behaviour of a competition

Question 15

Restrictive agreements

Answer 15

Where firms collude to indulge in anti competitive policy

Refusing to supply outlets which sell below the agreed price to simply agreeing to all increase prices of selected producers

Question 16

Aim of restrictive practices is to

Answer 16

Maximise joint profits as opposed to individual profits

Joint profit is where firms agree to maximise shared rather than individual profit

Question 17

Collision

Answer 17

Reduces uncertainty of competing firms who have a high interdependence as this may divide the market on an area basis where one area is seen as a possession of a certain firm

Restricting supply

Question 18

Process of new firms moving into a PC market

Answer 18

is a result of competitive pressure and will continue until supernormal profit is eliminated

Question 19

when MP falls on diminishing returns

Answer 19

it becomes more expensive to produce an additional unit of output so MC and AVC event tally starts to rise

Question 20

Break up of monopoly

Answer 20

break up into smaller firms if they believe it heavily affects the competitiveness of the market

by breaking up an oligopoly into two or more smaller firms the amount of firms in the market this will reduce barriers to entry as small firms are less able to influence the market and charge low prices to kill a competitor off through predatory pricing

means firms are less able to influence the market and become more like a PC with increased output and a fall in the price to become allocativelly efficient

Question 21

Collusive oligopoly may be unstable because

Answer 21

The most efficient firms will be tempted to break ranks by cutting prices in order to increase market share

Question 22

Contestable markets

Answer 22

can provide the theoretical benefits of perfect competition but without the large number of firms

Question 23

Collusion

Answer 23

Where oligopoly is defined by conduct as some form of agreement exists between the meh firms in the industry about price and output policies

Question 24

Game theory

Answer 24

Describes any situation when all of the participants in s game are pursuing their best possible strategy given the strategy of all other participants