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Micro economics > Perfect competition, imperfectly competitive markets and monopoly > Flashcards

Perfect competition, imperfectly competitive markets and monopoly Flashcards

1
Q

objective of firms

A

to maxmise sales, revenue and profit

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2
Q

When is sales maxmised

A

AC=AR

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3
Q

when is profit maxmised

A

MR=MC

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4
Q

when is revenue maxmised

A

MR=0

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5
Q

Divorce of ownership from control

A

this is when the owners are no longer in day to day control

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6
Q

principle agent problem

A

this is where the principle(shareholders) pays an agent(director or employee) to act in there interests

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7
Q

consequences of divorce ownership from control

A

They can act in self interest

it might bring growth as directors might be keen on growing the business

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8
Q

name three conditions of perfectly competitive market

A

infinte number of firms

firms are price takers

consumers have full information

producers have perfect information

no barriers to entry or exit

firms are profit maxmisers

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9
Q

allocative effiency

A

when a goods price is equal to what consumers want to pay

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10
Q

short run and long run effects of perfect competition

A

in the long run no supernormal profits but in the short run there is to attract firms

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11
Q

Conditions of monopolistic competition

A

product differentiation

price making powers

sellers demand curve downwards

no or very low barriers to entry and exit

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12
Q

monopolistic competition in the short and long run

A

supernormal profits can only be made in the short run due to barriers to entry and product differentiation. in the long run only normal profit can be made

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13
Q

concentrated markets

A

some industries dominated by a few companies which could be measured by concentrated ratio

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14
Q

characteristics of oligopoly

A

dominated by a few firms

high barriers to entry

differientiated products

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15
Q

How do oligopolies behave

A

interdependent

competitive or collusive strategy

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16
Q

competitive behaviour

A

when firms dont cooperate on prices

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17
Q

causes of competitive behaviour

A

lower costs

products being similar

low barriers to entry

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18
Q

collusive

A

when firms cooperate with each other on prices

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19
Q

formal collusion

A

involves an agreement between firms on prices

20
Q

informal collusion

A

this is when firms know its in their best interest not to compete

21
Q

causes of collusive behaviour

A

similar costs, few firms brand loyalty, high barriers to entry

22
Q

Non price competition factors

A

product differentiation, export markets, sales promotion

23
Q

How can collusion lead to monopolies

A

lead to higher prices and restricted output

no incentive for effcient production leading to market failure

24
Q

kinked demand curve

A

illustrates price stability

25
Q

assumptions in kinked demand curve

A

if one raises their prices other firms wont raise theirs

if one firm lowers their prices other firms wont lower theirs

26
Q

kinked demand curve graph

A

when price increases its elastic causing a fall in demand

when price decreases it inelastic as it doesnt change output

27
Q

Monopolies

A

when theres one firm in the market with 100% market share

28
Q

causes of monopoly power

A

barriers to entry-preventing new competition from enetering the market to compete with large profits

advertising and product differentiation-a firm may be able to act as a price maker if firms think other products are desirable

few competitors in the market-if market is dominated by a small number of firms there is gonna be price making power

29
Q

Advantages of monopolies

A

firms can produce more due to economies of scale

in the long run it could lead to product development and improvement

increased financial security can provide stable employment

30
Q

disadvantages of monopolies

A

they could become complacent as theres no need to innovate or respond to consumer preferences

consumer choice is limited due to lack of alternatives

31
Q

Price discrimintation

A

when a seller charges different prices to different consumers for the same product

32
Q

conditions for price discrimination

A

price making power

distiguish seperate groups who have different PED(price elasticity of demand)

33
Q

First degree price discrimination

A

where each individual is charged the maxmium they would be willing to pay

34
Q

second degree price discrimination

A

where lower prices are charged to people who purchase large quantities

35
Q

third degree price discrimination

A

when a firm charges different prices for the same product to different segments of the market

36
Q

advantages and disadvantages of price discrimination

A

extra revenue from consumer surplus can be used to improve products

price discrimination doesnt lead to allocative efficiency

higher prices are given to those with higher incomes

37
Q

contestability

A

how open a market is to new competitiors

38
Q

characteristics of a contestable market

A

barriers to entry are low

supernormal profits can be made

39
Q

causes of high barriers to entry

A

patents-legal protection against copying production

advertising created by strong brand loyalty

limit pricing or price wars

trade restrictions

high sunk costs

40
Q

Hit and run

A

this means entering while supernormal profits can be made and leaving when its down to normal profits

41
Q

Dynamic effiency

A

improving efficiency in the long term by carrying about r&D to improve products and to invest in technology and training

42
Q

static effiency

A

if allocative effiency and productive effiency are achieved

43
Q

productive efficiency

A

this is ensuring costs of production are as low as they can be

44
Q

consumer surplus

A

the difference between the price a consumer is willing to pay for a good or service and the price they will actually pay

45
Q

producer surplus

A

is the difference between the price a producer is willing to supply and the price they will receive

46
Q

consumer surplus graph

A

the area below the demand curve and above the equilibruim line

47
Q

producer surplus graph

A

the area above the supply curve and below the equilibruim line

Micro economics (8 decks)

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