TOF Definitions

Question 1

Natural monopoly

Answer 1

when single firm can meet market demand at lower average cost than two other firms
high-start up costs e.g. transportation, oil
e.g. Kaz Munay Gas Kazakhstan

Question 2

Price war/price competition

Answer 2

when firms competitively lower prices often leaving all firms worse off

Question 3

Perfect competition

Answer 3

SIX POINTS
a large number of small, price-taking firms sell homogenous goods in a market with no barriers to entry, perfect resource mobility and perfect information between producers and consumers regarding price and output
e.g. wheat market

Question 4

Monopoly

Answer 4

FOUR POINTS
a dominant price-making firm representing the entire industry sells a good with no close substitutes and high barriers to entry
e.g. Netflix owns 36% of online streaming market (but Amazon Prime and Hulu catching up)

Question 5

Oligopoly

Answer 5

FIVE POINTS
few large interdependent price-making firms sell homogenous/differentiated products in a market with high barriers to entry
e.g. du and Etisalat in are oligopolies selling pre-paid data packages in UAE’s telecommunications market

Question 6

Monopolistic competition

Answer 6

large number of small price-taking firms sell differentiated products in a market with low barriers to entry

Question 7

law of diminishing marginal returns

Answer 7

as units of variable inputs are added to the fixed input, the marginal product rises to a maximum then falls due to overcrowding

Question 8

General points when describing market structure are…

Answer 8

NPKB: No Prob KeBab
number of firms: small or large 
price-maker or price-taker 
key characteristic: homogenous/differentiated products, dominant/interdependent 
barriers to entry: low or high

Question 9

LRAC

Answer 9

long run avg costs

least possible avg costs when all inputs variable