Competitive markets & monopoly

• What is the spectrum of competition?

  It ranges from perfect competition to pure monopoly.
• What factors distinguish market structures?

  Number of firms, product differentiation, and ease of entry.
• What is the traditional objective of firms?

  Profit maximization (MC = MR).
• What is the divorce of ownership from control?

  When managers and shareholders have different objectives.
• What is the satisficing principle?

  Firms aim for acceptable profits rather than maximizing profits.
• What are the key features of perfect competition?

  Large numbers of firms, identical products, free entry/exit, and perfect knowledge.
• What role do firms play in perfect competition?

  They are price takers.
• What is the allocative efficiency result of perfect competition?

  Resources are efficiently allocated in the absence of externalities.
• What are the main characteristics of monopolistic competition?

  Many firms, product differentiation, and non-price competition.
• What is the role of non-price competition in monopolistic competition?

  Firms compete through quality, branding, and advertising.
• What defines an oligopoly?

  Few large firms dominate the market.
• What is a concentration ratio?

  The proportion of market share held by the largest firms.
• What is collusion in an oligopoly?

  When firms cooperate to restrict output or fix prices.
• What is the kinked demand curve?

  It shows price rigidity due to firms reacting asymmetrically to price changes.
• Why do oligopolies use non-price competition?

  To avoid price wars and differentiate products.
• What factors influence oligopoly behavior?

  Barriers to entry, interdependence, and product differentiation.
• What is monopoly power?

  The ability of a firm to influence market prices and output.
• What factors influence monopoly power?

  Barriers to entry, product differentiation, and the number of competitors.
• What are the advantages of monopolies?

  Economies of scale and potential for innovation.
• What are the disadvantages of monopolies?

  Higher prices, reduced output, and allocative inefficiency.
• What is price discrimination?

  Charging different prices for the same good to different consumers.
• What are the conditions for price discrimination?

  Market power, ability to segment the market, and no resale.
• What are the advantages of price discrimination?

  Increased producer surplus and potentially greater output.
• What are the disadvantages of price discrimination?

  Consumer surplus loss and potential inequity.
• What are the short-run benefits of competition?

  Lower prices and increased choice for consumers.
• What are the long-run benefits of competition?

  Innovation and improved quality of products.
• What is creative destruction?

  The process where innovation disrupts existing markets and creates new ones.
• What is a contestable market?

  A market with no significant barriers to entry or exit.
• What is hit-and-run competition?

  Firms enter a market to exploit short-term profits and exit when profits fall.
• What is the significance of sunk costs in contestable markets?

  High sunk costs deter entry, reducing contestability.
• What is static efficiency?

  Efficiency at a specific point in time, including allocative and productive efficiency.
• What is dynamic efficiency?

  Efficiency over time, influenced by innovation and investment.
• What are the conditions for allocative efficiency?

  Price equals marginal cost (P = MC).
• What are the conditions for productive efficiency?

  Average total cost is minimized.
• What is consumer surplus?

  The difference between what consumers are willing to pay and what they actually pay.
• What is producer surplus?

  The difference between the price received by producers and the minimum price they are willing to accept.
• How do monopolies impact consumer and producer surplus?

  Monopolies reduce consumer surplus and increase producer surplus.
• Why is PED important in monopolies?

  It determines the pricing power of the monopolist.
• How does PES affect supply in contestable markets?

  High PES allows firms to respond quickly to demand changes.
• Why is the L-shaped LRAC curve relevant for monopolies?

  It shows economies of scale leading to cost advantages.