Unit 4 Flashcards
What is market structure?
The number and size of firms within a market for a particular good/service and how they compete with each other.
Whats the concentration ratio?
Number of firms that dominate a market.
What’s the order of market structures?
Monopoly - Duopoly - Oligopoly - Monopolistic Competition - Perfect Competition
What are the characteristics of a Monopoly?
- Price leaders (government stops this)
- Anything over 25% market share has monopolistic powers
- Barriers to entry/exit
- New product development is not affected by competitors
What are the characteristics of a Duopoly
- Exploit customers with high prices
- Collusion (illegal)
- Compete on non-price competition
What are characteristics of a Oligopoly?
- Collusion
- Only few firms
- Exploit with high prices
- New product development
- Non-price competition
What assumptions does perfect competition make?
- Large numbers of producers
- Identical products
- Freedom of entry/exit
- Current market price
- Misallocation of resources (market failure)
What profit do monopolists make?
Supernormal
What barriers to entry exist for a monopoly?
- High costs to enter the market
- EOS for large firms
What are the different type of barriers to entry?
Natural: makes product difficult to replicate elsewhere
Legal: copyright etc
Product Differentiation: Branding and customer loyalty.
What is the demand for a monopolist?
D = AR
What are the main objectives of firms?
Profit Maximisation Profit Satisficing Sales Maximisation Revenue Maximisation Survival Growth Market Share
Why do firms want sales maximisation?
Increase market share
Increase size of firm
What is profit satisficing?
Occurs when firms are not operating at its profit maximising level of output.
The firms satisfied with the level of output as it is meeting its objectives.
Occurs because of the divorce of control/ownership
When does competition occur?
When there is rivalry between firms
This leads to lower prices and a choice of products.
Leading to innovation
