Unit 1 - 3 Flashcards
1
Q
What are the types of Oligopoly?
A
- Perfect Oligopoly - a homogeneous product, there is no differentiation eg. Cement or Sugar
- Imperfect Oligopoly - there is differentiation, firms differentiate their products by using branding which is established by advertising and promotion
2
Q
What are the characteristics of an Oligopoly?
A
- A few large producers dominate - high degree of industrial concentration
- Barrier to entry/exit
- Perfect or Imperfect
3
Q
What are the barriers to entry in an Oligopoly?
A
- Large capital investment is often required in order to enter the marker (Boeing, Airbus)
- Large companies will have gained EoS making it difficult for new firms to enter as they will have higher costs
- Large firms will use predatory pricing
- Firms will be making abnormal profits so difficult to compete as new firm
4
Q
Why do firms choose not to compete on price?
A
- To prevent price wars which would end up with all sellers reducing profits
- Instead they compete on branding and promotion but offering - new recipes, competitions, free gifts
5
Q
What are average costs?
A
The costs per unit of output
6
Q
What is a marginal cost in the short run?
A
The increase in total cost of producing an extra unit of production
7
Q
Where does Marginal Costs cut the average total cost curve?
A
At its lowest point
8
Q
How is maximum profit calculated?
A
- Where the different between TOTAL REVENUE and TOTAL COSTS is greatest
- Where MARGINAL COSTS = MARGINAL REVENUE
9
Q
What are the conditions of the Shut Down Position?
A
- Where TR is smaller than T
2. When PROFITS are smaller than AVERAGE VARIABLE COSTS
10
Q
Why would a firm not Shut Down?
A
- If a recession has caused a decrease in demand, the firm may expect demand to rise in the future
- If the loss staying open is smaller than the loss that would be made if closing - as a firm has to pay their fixed costs no matter what, so closing down would not reduce the firms costs
- If it is covering it’s TVC
11
Q
What would be the Internal Economies of Scale achieved if a firm were to increase its size?
A
RMRMTFP
- Research and Development - only large firms can afford R + D department - may lead to patents and advances in technology which would increase efficiency
- Marketing - large firms with increased sales - will reduce the cost per unit of advertising, can afford more expensive promotion and advertising
- Risk Bearing - large firms tend to have multiple products and possibly in many different countries, will spread the risk of failure and if one products sales fall, they will have another product to fall back on
- Managerial - employ specialists
- Technological - machinery used will be more up-to-date, bigger, better quality = increased efficiency
- Financial - banks consider less risk to lend money to, lower interest rates
- Purchasing - large firm will buy in bulk, lowering the costs per unit, can also negotiate better
12
Q
What are the Internal Diseconomies of Scale when average cost per unit rises?
A
CCIP
- Control - difficult to control and oversee everything that is going on
- Communication - difficult and time consuming process to communicate and inform everyone of what is going on - can lead to constant meetings
- Industrial Relations - lots of people, problems take longer to sort out, more people to conflict with, difficult to make individuals feel important
- Prices of Resources - if a firm used large volumes of resources - they becomes scarce and therefore will increase in price
13
Q
What are External Economies of Scale to an organisation?
A
SSSSIG
- Specialised Suppliers - of raw materials and equipment, may lead to development in capital goods
- Specialised Markets - specialised selling prices and arrangements can be made
- Skilled Labour Force - can draw on an increased pool of skilled labour - this will reduce training costs
- Specialised Services - banking, insurance and education as so large
- Improved Infrastructure - new transport facilities and communication
- Good Reputation - free advertising
14
Q
What are external Diseconomies of Scale for an organisation?
A
SRCL
- Skills shortages - as there is increased competition, lead to increased wages and therefore increased costs
- Raw materials shortages - competition for raw materials - increased prices - increased costs
- Congestion and transport costs
- Land prices increasing - increased competition, increased prices and therefore increased costs
15
Q
What is an Oligopoly?
A
- Handful of large sellers which have the power to influence the price of their products
- A small number of firms practically account for the whole output of the industry
- Eg. Cereal - Kellogs, Chocolate - Nestle
