T3 MARKET STRUCTURES Flashcards
an N-firm concentration ratios measures:
An N-firm concentration ratio measures how much market share the N largest firms in a market have.
when price discriminating a firm will charge:
Elastic consumers a lower price and inelastic consumers a higher price
What are the 3 conditions required for price discrimination
Market Power
Information
Limit reselling
What is the definition of price discrimination
Price discrimination is when a firm charges different groups of consumers different prices, for the same good.
What is meant by market power in the context of a condition for price discrimination
The firm must have market power: it must be able to change their prices without losing the majority of its consumers to rival firms
What information is required for price discrimination
The firm must be able to identify which consumers are elastic and which are inelastic.
What is meant by limit reselling in the context of a condition for price discrimination
The firm must be able to limit reselling: it must be able to limit elastic consumers from selling cheaper goods to inelastic consumers
What are the six types of economies of scale
Risk-bearing, managerial, financial, purchasing, technical and marketing.
natural monopolies are when:
where it’s naturally most efficient to have just one firm in the market.
A normal firm’s LRAC curve will go down and then up because of:
Internal economies of scale followed by internal diseconomies of scale
What are the four measures of efficiency?
Allocative
dynamic
X
productive
productive efficiency is when
MC = AC
allocative efficiency is when:
MC = AR
What is x inefficieny
X-inefficiency is when a firm is producing above its average cost curve for a given level of output.
Dynamic efficiency occurs when:
AR > ATC
which efficiencies does a monopoly achieve
Productively inefficient, allocatively inefficient, possibly dynamically inefficient, X-inefficient
Why does MC decrease and then increase?
output increases, spread costs but then diminishing marginal returns
NO barriers to entry or exit means:
no economies of scale, no patents, no sunk costs
What are the characteristics of perfect competition
Many small buyers and sellers
No barriers to entry or exit
Homogenous goods
Perfect information
What is a legal monopoly
a firm with over 25% market share.
what are the 3 assumptions made about monopolies
Firstly, there’s only one firm in the market
Secondly, they want to maximise profit
Thirdly, there are high barriers to entry
why TFL is considered a natural monopoly. (4 marks)
firstly, high sunk costs;
TFL has high sunk costs like railways, Oyster card tech development and training staff
secondly, huge economies of scale.
TFL has huge economies of scale like purchasing economies, which it can use to buy fuel in bulk to power its trains and buses at very low long run average costs.
why do natural monopolies exist (2 reasons)
high sunk costs
huge economies of scale.
What is Constant marginal cost simplification
When MC is constant, MC will be a straight line and MC = AC.