market structures

• characteristics of monopolistic

  many buyers and sellers

  slightly differentiated goods

  price makers

  low barriers

  good information

  non-price competition - branding advertising
• examples of monopolistic

  taxi

  clothes shops

  barbers
• monopoly / monopolistic short run


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• why does monopolistic not make supernormal profit long run

  the low barriers and good information allows firms to easily join the market.

  this means demand for individual firms moves left because customers are shared between more firms

  this happens until AR=AC
• monopolistic long run


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• monopolistic efficiency's - long run

  allocatively efficient - false - consumers are exploited

  productive efficient - false - not producing at minimum point in cost curve

  dynamically efficient - false - don't make supernormal profit longrun
• eval point for monopolistic pros

  compared to monopoly the price exploitation is not as bad due to not as much price making power

  compared to perfect comp they have differentiated goods so allocatively inefficiency isn't as bad

  the variety of goods makes it hard to achieve economies of scale whereas in homogenous goods its easier to bulk buy therefore economies of scale is achieved

  in competitive markets even if firms make normal profit due to competition firms will still try to reinvest to better competition
• characteristics of perfect comp

  many buyers and sellers

  homogenous goods

  firms are price takers

  no barriers

  perfect information

  super normal profit short run
• perfect competition long run 


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• perfect competition short run


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• perfect comp efficiencies

  allocatively efficiency - true - P = MC

  productive efficiency - true - exploiting economies of scale

  X-efficiency - true

  firms have to be statically efficient to compete in this highly competitive market

  dynamically - false - no innovation
• monopoly characteristics

  one seller dominant - one firm has 25% market share

  differentiated products

  price maker

  high barriers

  imperfect information

  firm is a profit maximiser
• monopoly


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• monopoly efficient

  allocatively efficient - false - p > mc monopoly restrict output

  productively efficient - false -

  x efficiency - false - firms don't have much competition so there's no need to waste resources to reduce costs

  dynamic efficiency - true -
• price discrimination conditions

  price making ability - monopoly power

  ability to separate market

  prevent market seepage
• first degree price discrimination

  when customers are charged the exact amount of money they are willing to pay.

  consumer surplus is turned into monopoly profit
• second degree price discrimination

  prices vary based on the amount of products bought such as bulk products will be cheaper then individual
• third degree price discrimination

  different process are charged based on characteristics like age, location, time of purchase
• benefits of profit maximisers

  you can reinvest the profit made

  you can pay dividends to share holders

  in order to maximise profits firms will lower their costs

  reward entrepreneurship
• why to not profit maximise

  they aren't aware of their marginal costs or marginal revenue

  avoid scrutiny - regulators may believe you are doing something dodgy because you are making very high profit

  stake holders could be harmed
• why profit satisfice

  in order to satisfy consumers because harming consumers leads to bad reputation

  if workers wages are low due to cost cutting then they could strike

  if by cost cutting when profit maxing you harm the environment environmental groups may start to protest therefore ruining your reputation
• benefits of revenue max

  benefit from economies of scale

  predatory prices to drive out other firms

  principle agent problem - divorce of ownership - managers may decide to revenue max to convince owners to give more perks
• benefits of sales max

  benefit from economies of scale

  limit pricing - tries to stop firms from entering the market

  principle agent problem - try to convince owners for benefits

  flood the market - consumers will see your product everywhere which will gain brand loyalty