section 5 Flashcards
two sides of imperfect/perfect competition
pure monopoly versus perfect competition
monopoly qualities
only firm in the market
unique product differentiation
complete barriers to entry
perfect information
price makers
perfect competition qualities
lots of firms in the market
identical product differentiation
no barriers to entry
perfect knowledge
price takers
barriers to entry
a potential difficulty or expense that a firm might face when trying to enter a market
examples of barriers to entry
innovative nature of the product (patents)
branding (advertising budgets)
predatory pricing (producing below average costs of small firms to keep firms entering)
limit pricing (producing at a level of normal profit to discourage entry)
concentration ratio
the extent to which a market is dominated by a few firms
calculating concentration ratios
the 3 firm concentration ratio: combined market share of the 3 largest firms
monopoly power
the power of a firm to act as a price maker rather than a price taker
does not need to be a pure monopoly
example of legal monopoly in uk
uk rail and water
factors that increase monopoly power
higher barriers to entry
more branding/brand loyalty
increased product differentiation
decrease in number of competitors
negative impacts of monopolies
higher prices and lower quantity
disequilibrium
under-consumption
does not maximise production
no competition - not maximised
positive impacts of monopolies
makes larger profits to reinvest into capital - therefore higher quality and more innovation due to research ability
lower costs of production
