Perfect Competition, Imperfectly Competitive Markets, Oligopoly and Monopoly

Question 1

Perfect Competition

Answer 1

Market structure with large numbers of buyers and sellers, identical products, free entry and exit, and perfect knowledge

Question 2

Objectives For Firms

Answer 2

Profit Maximisation - MC = MR
Sales Maximisation - AC = AR
Revenue Maximisation - MR = 0
Survival
Profit satisficing
Growth

Question 3

Imperfect Competition

Answer 3

Market structure with lots of buyers and sellers and sell heterogeneous (dissimilar) products

Question 4

All Characteristics of Imperfect Competition

Answer 4

Many Buyers and Sellers
Heterogeneous products
Price makers
Barriers to Entry/Exit
Imperfect Information

Question 5

Oligopoly

Answer 5

Market structure with a few big firms in the market

Question 6

All Characteristics of Oligopoly

Answer 6

Few Large Firms in the Market
Price Makers
Heterogeneous products
Product Differentiation
High Barriers to Entry/Exit
Imperfect Information

Question 7

Monopoly

Answer 7

Market structure where there is one firm in the market

Question 8

All Characteristics of Monopoly

Answer 8

One Firms in the Market
Price Maker
High Barriers to Entry/Exit
Imperfect Information
Absence of Competition

Question 9

Pure Monopoly

Answer 9

Single supplier within a market/industry

Question 10

Monopoly Power

Answer 10

When a firm has more than 25% market share within the market

Question 11

Limit Pricing

Answer 11

Artificial barrier to entry set by firms which involves setting the price of product below the cost of production for new entrant

Question 12

Predatory Pricing

Answer 12

The setting of prices below average price to drive out competitors within a market

Question 13

Contestability

Answer 13

The ease at which competitors can enter a market

Question 14

Sunk Costs

Answer 14

An unrecoverable cost

Question 15

Cartel

Answer 15

When producers illegally collude (cooperate) to change price of good/service

Question 16

Concentration Ratio

Answer 16

The % of market share for the leading firms

Question 17

Price Leadership

Answer 17

Smaller firms tend to follow price changes from the dominant firm in the market

Question 18

Price Wars

Answer 18

Firms repeatedly cutting their prices below their competitors

Question 19

Game Theory

Answer 19

This is the study between two or more interacting decision makers and how it can influence outcomes

Question 20

Nash Equilibrium

Answer 20

Concept in Game Theory where no interacting decision makers can gain by changing their strategy

Question 21

Allocative Efficiency

Answer 21

This is when resources have been distributed to the goods/services that consumers demand (AR = MC as it is where supply = demand)

Question 22

Productively Efficient

Answer 22

This is the point where firms are operating at the lowest cost so is the bottom of the AC (AC = MC)

Question 23

Static Efficiency

Answer 23

This describes the efficiency at one given point of time so incorporates both allocative and productive efficiency

Question 24

X-Efficiency

Answer 24

This is when firms are operating on the lowest AC curve, no waste

Question 25

Efficiencies of Perfect Competition

Answer 25

Allocatively Efficient, Productively Efficient, X-Efficient

Question 26

Efficiencies of Imperfect Competition

Answer 26

Dynamic Efficient

Question 27

Efficiencies of Oligopoly

Answer 27

Dynamic Efficiency, Possible Productive Efficiency, Allocative Inefficient when engaging in price competition

Question 28

Efficiencies of Monopoly

Answer 28

Dynamic Efficient, Allocative Inefficient, Productive Efficiency possibly