The Firm and Market Structures Flashcards
What are the characteristics of a perfectly competitive market?
High number of firms, identical products, perfectly elastic, low barriers to entry. Sales based only on price. The demand curve is downward sloping.
Monopolistic Competition is characterized by:
Perfect competition, but the products are not identical. Combination of difference in product quality, features, and how they are marketed.
What are the characteristics of an oligopoly?
Only a few firms competing. Each firm considers the actions of the others for pricing and strategy. Substitutes, but usually different products. High barriers to entry. ex. auto industry
What are the characteristics of a monopoly?
Single seller with no close substitutes. Very high barriers protect. Downward sloping. Offered by control of certain patents or trademarks or by controlling a resource. Usually supported by government.
At what point will a perfectly competitive firm cut off production? What are these firms called?
When MR=MC. MR curve for a pure competitive firm is equal to their demand curve.
They are price takers.
When do economic profits occur for monopolistically competitive firms?
When P > ATC.
What benefits do consumers receive in Monopolistic Competition?
Brand name and promotion provides more information, giving consumers the ability to make better purchasing decisions.
Firms innovate more to differentiate themselves.
What is the kinked demand curve model for an oligopoly?
A increase in a firm price will not be followed but a decrease will.
What is the cournot duopoly model?
Assumes both have marginal costs of production. Each firm knows the others supply for each period and make adjustments to maximize profit. This happens until output is equal. Once the same, no additional profit to be made.
What is the Nash equalibrium?
When firms reach a point where the choices of all firms are such that there is no decision that can be made to make themselves better off.
What is the Nash equalibrium?
When firms reach a point where the choices of all firms are such that there is no decision that can be made to make themselves better off.
When are collusive agreements most successful in an oligopoly situation?
When there are few firms, products are similar, cost structures are similar, purchases are small and frequent, cheating punishment is severe.
What is the dominant firm model?
When there is one firm with a significant market share and they set the price that the others take. The DF price is based on the market demand curve. When competitors lower prices, it only forces competitors out and increase DF market share.
What are the two pricing models for a Monopoly? What is their pricing profile?
Single-price model: One price to everyone, expand Q until MR=MC. Price searchers.
Price Discrimination: Different price to different people. Capture more profit. Must face downward facing demand curve, prevent reselling, have two identifiable groups with different elasticities.
What is a natural monopoly?
Supplying all the demand for the product. Average cost decreases as one company produces all demand. Low marginal cost. When Average cost is falling across relative demand. Adding firm would increase production costs.
