Perfect Competition, Monopoly and Monopolistic Competition Flashcards
what are the characteristics of perfect competition
-many buyers and sellers
-homogenous goods
-firms are price takers
-no barriers to entry and exit
-perfect information
what are the characteristics of imperfect competition
-few buyers and sellers
-differentiated goods
-firms are price makers
-high barriers to entry and exit
-imperfect information
examples of barriers to entry
-high capital costs
-control by incumbents of distribution networks and channels
-control of sources of inputs by incumbents
-legal and regulatory barriers
-economies of scale
-sales maximisation
-predatory pricing
examples of barriers to exit
-sunk costs e.g R&D, marketing
-subsidies and regulatory obligations
what is monopoly
a single supplier that constitutes the entire industry
what is the UK’s legal definition of monopoly
a firm that has 25% or more of the market share for an industry
what are the characteristics of monopoly
-only one firm in the industry
-high barriers to entry
-price maker
-profit maximiser
what is monopolistic competition
a market structure where each firm is a small part of the total industry
what are the characteristics of monopolistic competition
-large number of buyers and sellers
-low barriers to entry and exit
-perfect knowledge
-slightly differentiated product
is the demand curve for monopolistic competition more or less elastic than for monopoly and perfect competition
more elastic than monopoly
less elastic than perfect competition
can a firm in the long run make supernormal profits? why?
no as supernormal profits will attract new entrants to the market causing prices to fall
what are the benefits of monopoly
-research and development–>high supernormal profits can be invested in R&D–>improved quality–>increased consumer welfare
-economies of scale–>lower cost per output–>lower prices for consumers–>increased consumer welfare
-employment–>often large employers–>have hierarchical organisation–>better career prospects
-international competitiveness–>can compete abroad–>increased UK competitivity
what are the costs of monopoly
-consumer welfare–>often means higher prices and price discrimination
-not allocatively efficient–>AR>MC–>demand is not met by supply
-not productively efficient–>don’t produce at lowest point of AC–>higher prices for consumers
-x-inefficiencies–>higher prices
-delays entrepreneurs with new ideas entering the market
-monopsony buying power
