Perfect competition and monopolies

edwinesosa's version from 2015-05-25 11:41


Question Answer
characteristics of perfect competitionlow barriers to entry and exit + large number of firms +homogenous products +perfect knowledge
efficiencys in the short and long runProductive short run NO; Productive long run - YES; Allocative short run - YES; Allocative long run - YES
advantages of monopoliesdynamic efficiency ( more money to invest) + EOS + international competitiveness + monopolies can run loss making services, eg price discrimination
disadvantages of monopolieshigher price lower quantity + X-inneficiency + productively inneficient + allocatively inneficient (restricted choice and pricce above MC) + cost of creating barriers to entry, eg marketing
why revenue maxgreater manager rewards if linked to revenue + more market share so higher growth and prestige + commision
why sales maxentry deterence + social and ethical reasons
why profit satisficemore able to achieve other objectives + easier than profit maximising
other than shareholders, which stakeholders have needs to need to be satisfiedgovernment (laws obeyed, taxes paid) + eco groups + workers(salaries) + consumers (quality and value for money)


Question Answer
Conditions for price discriminationno arbitrage + different PEDs for different markets + must have market power and be a price maker
benefits for producers of price discriminationprofit, R&D + increase barriers to entry + customer loyalty
negatives on producers of price discriminationcompetition commision investigation + cost of preventing arbitrage
positive affects of price discrimination on consumersone group gets to pay less + improved quality if R&D used correctly + more choice, eg economy class wouldnt be available
negatives of price discriminationsome consumers pay more + higher barriers to entry so less choice and higher prices

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