Perfect competition, imperfectly competitive markets and monopoly Flashcards
What are entry barriers
obstacles that make it difficult for a new firm to enter a market
what are exit barriers
obstacles that make it difficult for an established firm to leave a market
What is product differentiation
distinguishing a product or a service from similar ones in the market
What is the divorce of ownership from control
the owners and those who control the firm (managers) are different groups with different objectives
what is satisficing
achieving a satisfactory outcome rather than the best possible outcome
When is profit maximised
at the level of output which MR=MC
What is perfect competition
occurs when there are many sellers, easy to enter and exit firms, products are identical and sellers are price takes
what is productive efficiency
a firm using all its resources in the most efficient way possible, producing the maximum output with the minimum input
what is allocative efficiency
producing the right amount of goods or services that people want, and distributing them in a way that benefits everyone
what is the problem with perfect competition
no real world market meets all the conditions
what is a monopoly
one firm only in a market
what is monopoly power (also known as market power)
when one company is big and dominant that it can set high prices because there’s no competition to challenge it
what are two advantages of monopoly power
economies of scale- produce goods more cheaply
dynamic efficiency - use profits to fund research and development
Two disadvantages of monopoly power
productive inefficiency- may not produce at lowest cost so there is wasted resources
allocative inefficiency- misallocation of resources and reducing overall welfare
What is monopolistic competition
market where many companies sell similar not identical products. they have some control over prices
