Market Structures SAQ

Freedom of entry/exit for sellers Homogeneous goods Many buyers Many sellers who are price takers Firms aim for profit maximization High degree of knowledge among buyers and sellers

Perfect substitutes are available with no product differentiation.

No individual buyer can influence the price as each buys only a tiny percentage of total output.

<p>Explain why firms in perfect competition are price takers.</p> Signup and view all the answers

<p>Firms produce the quantity where marginal revenue equals marginal cost (MR = MC).</p> Signup and view all the answers

<p>Buyers already have a high degree of knowledge, products are identical, and advertising increases costs without differentiating products.</p> Signup and view all the answers

<p>Many sellers to choose from Lower prices due to normal profit in the long run</p> Signup and view all the answers

<p>No potential to expand and benefit from economies of scale.</p> Signup and view all the answers

<p>There is a lack of variety as goods are homogeneous.</p> Signup and view all the answers

<p>Buyers have perfect knowledge and would switch to other sellers if one attempted to charge above the market price.</p> Signup and view all the answers

<p>Monopolistic competition.</p> Signup and view all the answers

<p>Products are similar but not identical, with close substitutes available.</p> Signup and view all the answers

<p>No licenses or significant restrictions are needed to enter the market.</p> Signup and view all the answers

<p>Successful differentiation results in a steeper (more inelastic) demand curve due to less price sensitivity.</p> Signup and view all the answers

<p>The demand (AR) curve can be steep or flat depending on the level of brand loyalty and differentiation.</p> Signup and view all the answers

<p>Wide variety of goods/services Incentives for firms to be innovative and creative</p> Signup and view all the answers

<p>Prices are higher and output lower compared to perfect competition due to inefficiencies and profit maximization.</p> Signup and view all the answers

<p>Competitive advertising, branding, and distinctive packaging.</p> Signup and view all the answers

<p>Firms are not producing at the minimum point on the AC curve, leading to inefficiencies.</p> Signup and view all the answers

<p>Sellers act independently and set their own prices, subject to the law of demand.</p> Signup and view all the answers

<p>One seller Aims to maximize profits Subject to the law of demand Barriers to entry Potential to operate inefficiently</p> Signup and view all the answers

<p>Produces quantity where marginal revenue equals marginal cost (MR = MC).</p> Signup and view all the answers

<p>High start-up costs, patents, sole access to raw materials, legal restrictions.</p> Signup and view all the answers

<p>Monopolies do not need to produce at the lowest point on the AC curve due to lack of competition.</p> Signup and view all the answers

<p>MR curve lies below the AR curve because to sell more units, the price must be lowered for all units.</p> Signup and view all the answers

<p>Higher concentration with fewer firms leads to less competition and more market power for the existing firms.</p> Signup and view all the answers

<p>Economies of scale Access to large amounts of capital</p> Signup and view all the answers

<p>Lack of competition reduces the pressure to innovate.</p> Signup and view all the answers

<p>Lack of competition reduces the pressure to innovate.</p> Signup and view all the answers

<p>Charging different prices for the same service, such as a solicitor charging different rates based on the client's situation.</p> Signup and view all the answers

<p>Monopoly power Ability to identify groups with different price elasticities Keeping markets separate Consumer indifference to paying different prices</p> Signup and view all the answers

<p>Market dominated by a small number of large firms.</p> Signup and view all the answers

<p>Goods/services are close but not perfect substitutes.</p> Signup and view all the answers

<p>Firms consider the likely reactions of competitors when making pricing decisions.</p> Signup and view all the answers

<p>Prices tend not to change even if production costs change to avoid loss of sales or price wars.</p> Signup and view all the answers

<p>Charging lower prices to deter new entrants, making it unprofitable for them to enter.</p> Signup and view all the answers

<p>Dominant firm sets the price, and other firms follow.</p> Signup and view all the answers

<p>Greater choice of products Stable prices</p> Signup and view all the answers

<p>Collusion among firms can lead to higher prices and lower output.</p> Signup and view all the answers

<p>Firms compete through advertising, product quality, and other means rather than price.</p> Signup and view all the answers

<p>Investigates anti-competitive behavior Prosecutes breaches of competition law Assesses mergers/takeovers Promotes consumer rights and product safety standards</p> Signup and view all the answers