Micro - theme 3.4 Market structures

A level

Barrier to entry /exit

factors that can prevent or impede newcomers into a market or industry sector, and so limit competition eg. sunk costs and regulation

sunk cost

an unrecoverable cost of entering a market

perfect competition

a market structure in which a large number of small firms produce identical products, there are no barriers to entry or exit and there is perfect information

shut down price

P = AVC

monopoly

market structure with one dominant firm with high barriers to entry

natural monopoly

where a firm has economies of scale so large that a single firm can supply to the market at a lower average cost than multiple firms

monopolistic competition

market when there are many buyers and sellers, producing differentiated products, with no barriers to entry

product differentiation

where a producer attempts to distinguish their product from those of competitors, with the aim of making demand more price inelastic

price discrimination

occurs when a firm sells the same commodity to different buyers at different prices for reasons not associated with costs

allocative efficiency

level of output (P = MC (MC = AR)). social surplus is maximised and output matches the consumers’ preferences or this occurs when the pattern of goods and services being produced is such that its impossible to make one person better off without making someone else worse off (Pareto optimality)

productive efficiency

the level of output where MC = ATC. Average costs are minimised and there is no wastage of resources

dynamic efficiency

a fall in long run average costs due to technological innovation

X - inefficiency

increased average costs of production due to a lack of competition and organisational inefficiency