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Economics > Theory of the Firm -unit 3 > Flashcards

Theory of the Firm -unit 3 Flashcards

1
Q

What is the concentration ratio

A

The market share controlled by the ā€˜nā€™ largest firms

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2
Q

How many firms are in perfect comp?

A

Many small firms

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3
Q

How many firms are in monopolistic comp

A

Many small firms

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4
Q

How many firms are in an oligopoly

A

A few large firms dominate

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5
Q

How many firms are in a monopoly

A

One large firm with 100% concentration ratio

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6
Q

What type of product is in Perfect comp

A

Homogenous

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7
Q

Why type of product is in monopolistic comp

A

Similar products

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8
Q

Why type of product is in oligopoly market

A

Similar but distinct
Eg pc and mac
Samsung s4 and iPhone 6

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9
Q

Why type of product is in monopoly

A

Unique

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10
Q

What kind of knowledge is in perfect comp

A

Perfect

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11
Q

What kind of knowledge is in monopolistic comp

A

Imperfect

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12
Q

What kind of knowledge is in an oligopoly

A

Imperfect

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13
Q

What kind of knowledge is in monopoly

A

Imperfect

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14
Q

What kind of barriers to entry are in perfect comp

A

None

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15
Q

What kind of barriers to entry are in monopolistic comp

A

Low barriers to entry

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16
Q

What kind of barriers to entry are in oligopoly

A

High

17
Q

What kind of barriers to entry are in monopoly

A

High

18
Q

What price making powers do firms in perfect comp have

A

They are price takers

No price setting power

19
Q

What price making powers do firms in monopolistic comp have?

A

Some degree of price setting power
Brand orientated
Eg. Dior makeup

20
Q

What price making powers do firms in oligopoly markets have?

A

Significant price setting power

But interdependent

21
Q

What price making powers do firms in monopoly markets make

A

Price maker

22
Q

Are supernormal profits made in perfect competition?

A

Only in the short run

In the long run the supernormal profits are out competed by new firms entering the market.

23
Q

When is the shutdown point for a perfectly competitive firm?

A

When the firm is not converging average variable costs.

24
Q

Give some examples of firms in monopolistic competition

A

Hairdresser
Restaurant
Make up industry

25
Q

What would happen if a price war occurred in an oligopoly market

A

If one firm lowers prices
The others will follow
So overall they would lose revenue
Ergo firms avoid price competition

26
Q

What is collusion

A

An agreement between two or more firms to limit competition, set prices/output and increase welfare gains of the firms concerned.

27
Q

Is collusion legal?

A

Collusion is illegal in most cases

OPEC is an example where collusion is not illegal.

28
Q

What is overt collusion

A

Where firms openly fix prices, output, marketing or the sharing out of consumers

29
Q

What is a cartel

A

A formal agreement between firms to act together

Eg. Sugar cartel in USA between 1934 and 1974 to guarantee price of sugar

30
Q

What is tacit collusion

A

Behind the scenes collusion.

No spoken agreement.

31
Q

What is a whistleblower

A

A firm who informs the authorities about a collusion agreement in return for immunity against prosecution.

32
Q

List these in order from most competitive market, to least competitive

Perfect competition
Monopoly
Oligopoly
Monopolistic competition

A 
Most competitive 
-perfect comp
-monopolistic comp
-oligopoly
-monopoly
Least competitive
33
Q

What is price discrimination

A

Where a firm sells the same product in a different market with differing elasticises at different prices.

34
Q

What three conditions will price discrimination be successful?

A

High barriers to entry and a degree of monopoly power

At least two separate markets with differing price elasticises of demand

The markets can be kept separate at a cost that is lower than the gain in profits.

35
Q

What is a contestable market

A

A market with low sunk costs and therefore low barriers to entry or exit

36
Q

What is monopsony power

A

Exits when sellers face powerful buyers

Eh big an individual wishes to work in emergency healthcare in UK, then sole buyers of such employees is NHS.

Economics (7 decks)

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