Term
| What are the conditions for the market structure of a perfect competition? |
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Definition
1. Large number of firms
2. Homogeneous product
3. Price taker
4. Costless entry |
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Term
| Describe the market demand and supply curves, and how the firm in perfect competition is a price-taker. |
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Definition
Market demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.
Supply curves are graphs showing the quantities that suppliers are willing to sell at alternative prices during a specified time period.
A price-taker is a firm that is unable to influence the market price of it's product, which is one of the conditions for perfect competition. |
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Term
| Why is the demand curve faced by a firm in perfect competition a horizontal line? |
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Definition
| Because the price remains the same regardless of the market demand. |
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Term
| What is meant by the term diseconomies of scale? |
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Definition
| A small amount of the product can be produced at a lower cost per unit. A small scale is better. |
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Term
| What are the conditions for an oligopoly market structure? |
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Definition
1. A few firms
2. Homogeneous or differentiated product
3. More choice of price
4. Significant barriers to entry - difficult but not impossible |
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Term
| Can an industry have 100 firms and still be an oligopoly? Explain. |
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Definition
| Yes, because many firms can act as one. |
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Term
| What does market concentration tell us about an industry's level of competition? |
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Definition
| The higher the amount of market concentration, the less competitive the industry is. |
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Term
| Describe the demand curve faced by a firm in an oligopoly market structure. |
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Definition
| There is a highly elastic demand. |
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Term
| Compare the demand curve faced by an oligopoly firm to that seen in more competitive markets. Compare their elasticities. |
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Definition
| In an oligopoly the demand curve is highly inelastic, as opposed to a more competitive market where the demand curve is highly or perfectly elastic. |
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Term
| Discuss in detail the three methods available to this firm to explain its price and quantity position in the short run. |
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Definition
1. Collusion: Set price/set quantity or geographical properties. More profit but is illegal
2. Tacit Collusion: Implied, informal agreement. Legal.
3. Cost: Plus pricing - cost per unit + mark-up% = product price
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Term
| What are the differences between collusion and tactic collusion? |
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Definition
| In collusion the companies speak of or write down their set price/set quantity or their geographical properties; it is a mroe formal agreement. In tacit collusion the agreement is just an implied and informal agreement; it is not documented anywhere. |
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Term
| Under what conditions would collusion tend to be more successful? |
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Definition
| When the industry is selling at the monopoly price. |
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Term
| What is meant by the term economies of scale? |
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Definition
| A large amount of the product can be produced at a lower cost per unit. |
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Term
| What are the conditions for pure monopoly? |
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Definition
1. One firm
2. Unique product
3. Price maker
4. Blocked entry |
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Term
| Describe the demand curve faced a monopoly firm. |
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Definition
| There is a perfectly inelastic price firm. |
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Term
| Why do we call this firm a price maker? |
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Definition
| Because it influences the market price of it's product; it has complete control over it. |
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Term
| Compare the demand curve faced by a monopoly firm to those of more competitive markets. Compare their elasticities. |
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Definition
| A more competitive market has a highly or perfectly elastic demand curve, while a monopoly has a perfectly inelastic demand curve. |
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Term
| Describe the three categories of actual monopoly, offering examples of each. What is the major difference between pure and actual monopoly? |
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Definition
1. Natural monopoly. ex: public utility
2. Patent
3. Locational/Spacial.
In a pure monopoly only one firm sells that product and there are no acceptable substitutes available. In an actual monopoly one firm is the only seller in it's market, but others offer acceptable substitutes. |
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Term
| What is a natural monopoly? |
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Definition
| When the government may step in and issue an exclusive franchise to one producer. |
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Term
| Describe a natural monopoly in terms of economies of scale. |
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Definition
| A market with significant economies of scale. |
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Term
| How does an economist define price discrimination? |
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Definition
| Charging different groups or buyers different prices (when price defferences are not justified by cost differences). |
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Term
| What conditions are necessary for a firm to practice price discrimination? |
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Definition
1. Separate customers by elasticity
2. Some choice overpriced
3. No resale |
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