Perfect and Monopoloistic Competition Flashcards
What are the four factors that determine the degree of competition in a market?
- Number of competing firms in a market
- Freedom of entry and exit into the industry
- Nature of the product
- Shape of the demand function
What characterizes perfect competition?
- Most competitive
- Least concentrated
- Lowest market power
- Many firms
- Identical products
- Unrestricted entry
- Commodity Markets
What defines monopolistic competition?
- Many firms
- Differentiated products
- Unrestricted entry
- Small specialist firms
What are the main characteristics of an oligopoly?
- A few firms
- Products may be similar or differentiated
- Restricted entry
- Large firms
What defines a monopoly?
- Least competitive
- Most concentrated
- Highest market power
- A single firm
- Highly differentiated product
- Blocked or restricted entry
- Large networks or strong patents
What is the definition of a small firm in the context of perfect and monopolistic competition?
A firm that is unable to influence the market price and must accept the prevailing price.
What are barriers to entry or exit?
- Economies of scale
- Legal protections (e.g., licenses/permits needed to trade)
- Brand loyalty
- Mergers/takeovers
- Ownership and control of resources
- Barriers to exit
What are the characteristics of perfect competition?
- Large number of very small firms
- All firms produce the same good
- All firms are price takers
- No barriers to enter or exit the market
How does monopolistic competition allow firms to have pricing power?
Due to the differentiation of products, firms can charge a higher price without losing customers.
What is the relationship between marginal revenue and marginal cost for profit maximization?
Profit maximization occurs at the optimal level of output where MR = MC.
