YR 13 MOCK

• Perfect competition

  o Many buyers and sellers

  o Sellers are price takers

  o Free entry to and exit from the market

  o Perfect knowledge

  o Homogeneous goods

  o Firms are short run profit maximisers

  o Factors of production are perfectly mobile
• Monopoly

  o Profit maximisation. A monopolist earns supernormal profits in both the

  short run and the long run.

  o Sole seller in a market (a pure monopoly)

  o High barriers to entry

  o Price maker

  o Price discrimination
• Oligopoly

  High barriers to entry and exit:

  High concentration ratio:

  Interdependence of firms

  Product differentiation
• Monopolistic competition

  • there is product differentiation
  • there are no barriers to entry
  • firms have some degree of price setting power
  • imperfect information
  • compete using non price competition
• Characteristics of contestable markets

  • Contestable markets face actual and potential competition.
  • Entrants to contestable markets have free access to production techniques and technology.
  • There are no significant entry or exit barriers to the industry. For example, there will be no sunk costs in a contestable market.
  • There is low consumer loyalty.
• Barriers to entry

  • legal barriers
  • customer loyalty and branding
  • predatory pricing
  • limit pricing
• Tacit collusion

  when there is no formal agreement but collusion is implied . For eg: the UK supermarket firm, firms are competing in a price war.
• Profit maximisation - premium pricing

  involves setting prices higher than competitors to create perception of high quality. It can maximise profits by targeting customers who are less price sensitive.
• Sales maximisation - penetration pricing

  involves setting low initial price to attract large number of customer quick. Lower price than competitors and so aims to increase market share and boost sale volume
• Survival - cost plus pricing

  involves adding a mark up from total costs of producing a product to ensure a profit. It will make sure prices cover costs and so the firm can maintain cash flow, which is vital for operations
• Productive efficiency

  occurs when resources are used to give the maximum possible output at the lowest possible cost.

  Can be achieved by improving management techniques or employing more advanced technology
• Allocative efficiency

  occurs when resources are allocated to the best interests of society, when there is maximum social welfare and maximum utility.

  Firms are more efficient when they produce goods that meet customer preferences. This helps maximise consumer satisfaction. Firms that are market orientated meet this outcome