4. Competitive and Concentrated Markets (AS)

Duopoly

two firms take the majority of the demand *e.g. Pepsi and Cola*

Oligopoly

the existence of a few dominant firms, each market power and seeks to protect and improves its position over time

Working Monopoly

a firm with greater than 25% of total sales

3 things that are used to distinguish between different market structures

1. The number of firms
2. The degree of product differentiation
3. Ease of entry into market

Explain why MC=MR is profit max

MR>MR, profits rise as output increases

MR

Sales Maximisation

AC=AR

Dynamic Efficiency

Improving efficiency in the long run i.e re-investing in the economy

Draw graphs for a perfect competition

Explain concentration ratios

The collective market share of the largest firms in an industry

n (number firms we are working out the concentration ration)

n : total market share

***A:25%, B:10%, C15%, D20% 4:70***

**Don’t add up ‘others’**

legal Monopoly

25% market share or more

Conditions for monopolistic market

* Price makers
* high barriers to entry
* advertising and product differentiation
* Few competitors
* profit maximiser
* imperfect information

Draw diagrams for a monopolist

Why can a monopolist make supernormal profits even in the long run

The barriers to entry are high, so no new firms enter the market, this way supernormal profit is not competed away

inefficiencies of monopolies and why

in the long run equilibrium position, MC Isn’t equal to AC, meaning it isn’t productively efficient

The price being charged is also greater than MC, meaning it is not allocatively efficient

They are producing above their AC curve, allowing for waste and excess costs. This is because there isn’t competitive drive and it is hard to reduce waste.

efficiencies of monopolies

Dynamic Efficiency → There are long run supernormal profits

4 Disadvantages of monopolies

→ narrow product range



→ charge high prices



→ Reduces consumer surplus



→ can exploit suppliers

Advantages of Monopolies

→ can gain advantage from economies of scale

→ Intellectual property rights, like patents and copyrights, means consumers can benefit from better quality, innovative products, but also reward the entrepreneur.

→ financial security: stable employment

Explain 4 barriers to entry for monopolies

1. Legal → patents, licence, red tape, insurance
2. Technical → start up costs, sunk costs, economies of scale
3. Strategic → predatory pricing, heavy advertising
4. brand loyalty

Draw the LRAC for a monopoly and explain why

The LRAC curve will be downwards sloping for a huge quantity range because to minimise the Average, it takes a lot of quantity, a TC is so high (AC = TC/Q)

X efficiency

Where a business is minimising its waste *i.e. there are no excess costs. any point in its AC curve*

Consumer Surplus

The difference between the price consumers are willing and able to pay for a good/service and the price they actually pay