week 5 Flashcards
5 characteristcs/assumptions of a non-competitive market structure
- market power
- few sellers
- unique goods
- imperfect info
- supernoaml profits
what is an example of a non competitive market structure
pure monopoly
what is monopolostic competition market structure
a large number of firms competition but imperfect competition between those firms
a market structure that contains elements of a perfectly competitive market and a monopoly
what are the 4 main characteristics/assumptions of monopolistic competition market structure
resembles competitive market:
- many buyers and sellers
- perfect information
- no barriers to entry or exit
resembles imperfectly competitive market:
- slightly differentiated products
what are 5 non price competition things a business in a monopolisitic compeitition market structure can do to differentiate their product and gain more consumers
- branding
- packaging
- quality
- extra features (added value)
- customer service
what is the key point of monopolistic competition market structures
firms sell slightly differentiated products and services
what does it mean to have product differentiation and what do firms become from it
product differentiation means that firms becom price-makers in their own market segment
results in their own downward sloping demand curve
how do firms become price makers from product differentiation
-> different products are given different prices
—> brand loyalty means that firms can charge more and customers remain (becoming more inelastic)
—–> firms do not have to accept the market price, they are price makers
what happens to a firm if the degree of differentiation becomes stronger
they become more seperated from the rest of the market
if taken too far can lead to seperate market segments ( a monopoly)
what is the difference between slight differentitation and significant differentiation
slight differentitaion:
- close substitutes
significant differentiation:
- separate market segments
eveluate (a chain of reasoning) why non price competition and product differentiation benefits firms with their efficiency and welfare outcomes
-> improving products and services
—> attracts more customers
—-> competition drives up standards
——> efficiency and welfare benefits
evaluate (chain of reasoning) why non price competition and product differentiation is negative for firms with their efficiency and welfare outcomes
-> generate greater market power
—> results in lessening of competition
—-> results in monopoly outcome
——> damages efficiency (don’t have to compete as much so become less efficient) and welfare outcome (slower, and creates a dead wheight loss triangle)
why do firms in a monpolostic competition market structure face a downward sloping demand (AR) curve
firms are price makers - they can charge higher prices without losing all customers due to brand loyalty
this comes from the fact firms sell slightly differentiatied products
why is the MR curve twice as steep as AR curve in a monpolostic competition market structure
if firms want to sell more, a lower price has to be charged
how does firms in a monpolostic competition market structure makr supernormal profits in the short-run
they produce the quantity at MR=MC, but they have slight degree of market power so they can price above MC until it reaches the demand curve
the gap between AC and the price selling at is the level of supernormal profits
