Unit Two Review Flashcards
Four conditions for perfect competition
Buyers and sellers participate in market
Sellers offer identical product
Buyers and sellers well informed about products
Sellers able to enter and exit market freely
The simplest market structure is known as
Perfect competition
What are the factors that make it difficult for new firms to enter the market
Start up costs
Technology
Economies of scale
Factors that cause a producers avg cost to drop as production rises, so more produce, less cost
Ex mass production
How can economies of scale become anatural monopoly
So because the economy of scale can produce more for less, they can supply all the output like in a natural monopoly
Natural monopoly
A market that runs most efficiently when one large firm supplies all of the output
What can destroy a natural monopoly
New technology can make small companies as efficient as large ones
Price discrimination
Dividing customers into groups depending on how much that will pay for a good
What happens when monopolistic firms start earning profits well above costs
Competition would take customers away
New firms enter with cheaper slightly different products
All take profit away
Zoning laws
Law that separates areas for residency or business, which could keep sole proprietors form working out of home
Different types of liability
Unlimited personal liability- sole
Responsibility (sole
Proprietors)
Limited liability- partnerships limited form other partners mistakes
Unlimited liability- in partnership one is fully liable and the other isn’t
Who has limited liability for a corporation debt
Stockholders
Horizontal merger
Join two or more firms competing in same market with same good and service
Vertical merger
Join two or more firms involved I. Different stages of producing the same good or service. Ex all stages of production, wheat farm to the pizza place
Why have franchises become popular over the years
Allow owners degree of control and benefit from support of parent company
