2.5 Competition

• What is competition in the context of firms?

  Firms selling similar products to consumers
• Why do producers compete?

  To maximize profits and survive
• What are two reasons producers compete?

  Maximize profits and survive
• What is price competition?

  Competing based on the price of products
• Name one way producers compete.

  By price
• What are factors of price competition?

  Change in sale price and brand loyalty
• How does a decrease in sales price affect market share?

  It may increase market share by attracting customers
• What is non-price competition?

  Competing based on factors other than price
• What is a factor of non-price competition?

  Marketing strategies
• What are the characteristics of competitive markets?

  • Many producers competing
  • No single producer can control the market
  • No individual consumer can set prices
• What happens to prices in competitive markets?

  Prices are determined by supply and demand
• What is the impact of increased competition on consumers?

  Lower prices and higher quality products
• How does competition affect producer efficiency?

  Producers must become more efficient to survive
• What is a monopoly?

  A market with one producer controlling prices
• What is one reason monopolies form?

  Legal restrictions like patents
• What is an oligopoly?

  A market controlled by a few large firms
• What is the concentration ratio in an oligopoly?

  Market share of the top firms exceeds 50%
• How do firms in an oligopoly behave?

  They are interdependent and affect each other
• What is the price level in a monopoly?

  High prices set by the producer
• What is the efficiency level of monopolies?

  Low efficiency, but can achieve economies of scale
• What is the impact of competition on consumer sovereignty?

  More products available at desired prices
• What is the relationship between competition and innovation?

  Competition encourages innovation to attract consumers
• How does technology impact workers in competitive markets?

  Technology may replace some workers
• What is the size of firms in competitive markets?

  Small firms
• What is the barrier to entry in competitive markets?

  Low barriers to entry
• How are prices determined in monopolies?

  By the producer as a price maker
• What is the output level in competitive markets?

  High output
• What is the efficiency level in competitive markets?

  More efficient than monopolies
• What is the price level in oligopolies?

  Higher than competitive markets
• What is one reason for the formation of monopolies?

  Greater efficiency due to economies of scale
• What is the role of copyrights in monopolies?

  They protect unique products from competition
• How do firms in an oligopoly react to each other's pricing changes?

  They adjust their strategies based on competitors