Market structures flashcards

Flashcards based on economics exam revision notes covering key definitions, elasticity, costs, market structures, macroeconomics, and policy.

Perfect Competition

A market structure where many firms sell identical products with no barriers to entry, and firms are price takers

Perfect Competition - Characteristics

Large number of small firms, Identical products, Free entry and exit, No pricing power, Perfect knowledge

Perfect Competition - Example

Agricultural produce markets

Perfect Competition - Formula

P=MC

Monopolistic Competition

A market structure with many firms selling differentiated products with some pricing power.

Monopolistic Competition - Characteristics

Many firms, Product differentiation, Some barriers to entry, Some pricing power

Monopolistic Competition - Example

Clothing brands, cafes

Monopolistic Competition - Formula

P>MC

Oligopoly

A market dominated by a few large firms, often engaging in strategic interactions.

Oligopoly - Characteristics

Few dominant firms, High barriers to entry, Potential for collusion, Interdependent pricing

Oligopoly - Example

Airlines, supermarkets

Oligopoly - Game Theory

Firms may engage in strategic decision-making using payoff matrices.

Monopoly

A single firm dominates the market with high barriers to entry.

Monopoly - Characteristics

One firm, Unique product with no close substitutes, High barriers to entry, Price maker

Monopoly - Example

Australia Post

Monopoly - Formula

MR=MC

What does the Economic Profit Condition look like in Perfect Competition?

Profit disappears in the long run (P=ATC)

What does the Economic Profit Condition look like in a Monopoly/Oligopoly?

Profit can persist if barriers exist.

Sketch / describe a graph of a firm in perfect competition. What is the relationship between price, marginal cost and average total cost at the profit maximizing quantity?

In perfect competition a firm's graph shows the demand curve as perfectly elastic (horizontal line) at the market price. The firm produces where P = MC, and in the long run, P = MC = ATC at the minimum of the ATC curve.

Sketch / describe a graph of a monopoly. How does it differ from perfect competition?

A Monopoly graph includes a downward-sloping demand curve, a marginal revenue (MR) curve below the demand curve, and marginal cost (MC) curve. The monopoly produces where MR = MC, setting price according to the demand curve above this quantity. Price is higher and quantity lower than in perfect competition.