Unit 5 Flashcards
Characteristics of an oligopoly
High barriers to entry, super normal profits in the long run, interdependent decision making, a few dominant firms
Definition of interdependent decision making
The firm must take into account the likely reactions of their rivals to change in price,output or forms of non-price competition
What is an oligopoly collision
Forms worry about uncertainty and uncertainty effects a forms profits, pricing and output. Collision means firms work together
What is an overt collusion
Joint development for a product may help because cost are lowered but consumers get more choice
What is a covert collision
Market rigging or price fixing within a market, bad for consumers
What is tactic collusion
Implicit understanding between firms but no explicit agreement is made, dominated firm becomes price leader and the other forms become price takers
What is a cartel collusion
Forms that collude to the same price, Creates a monopoly since their is no really competition. Its illegal
Characteristics of a monopoly market
1 dominant firm, supernormal profits in short and long run,high barriers to entry , opportunities for economies of scale
What is market power
The ability of a firm to set price above marginal costs
Why can supernormal profits be achieved in the short run as well as long run in a monopolistic market
High barriers to entry means AR is greater than AC
What are the main types of efficiencies
Productive,static,dynamic , allocative , x
What are the advantages of a monopoly to a consumer
Lower costs and prices to a consumer
What is price discrimination
A method by which firms segment their market and charge a different price to a each segment
What is third-degree price discrimination
Firms offer the same product as a discount to certain consumer groups
What is Second- degree price discrimination
Firms offer different prices based on product quality or quantity
What is first degree price discrimination
Enables firms to use personal data to charge the equilibrium price to each consumer
Advantages of third degree price discrimination
Reduces consumer surplus, increase output through more consumer
What is block pricing
A Strategy where a company sets a specific price for a defined quantity or a product or service
What Is a natural monopoly
Occurs when it would be too expensive for. A number of competing firms to provide the same product e.g. water and gas provisions
Disadvantages of a monopoly
Removes competition due to barriers to entry, makes supernormal profit in the long run by chagrin higher prices than would occur under competitive markets to consumers being exploited
What is producer surplus
The difference between how much a person would be willing to accept for a given quantity of a good versus how much they can receive by selling the good at the market
What is consumer surplus
A measure of the welfare that people gain from consumption of good’s and services
How is productive inefficiency linked to monopolies
It does not produce at the lowest point on the AC curve
How is allocative inefficiency linked to monopolies
It does not produce at the lowest point P = MC
How is x-efficiency linked with monopolies
No competitors means less incentive to control costs
