Market Structures

Question 1

Perfect competition

Answer 1

• many small firms
• no barriers to entry/exit
• price takers (P = MR = AR)
  SR : Firms may earn supernormal profit
  LR : new firms enter if profit to be made —> only normal profit remains

Question 2

Profit maximisation point?

Answer 2

Where MC = MR and where MR = 0

Question 3

Monopoly

Answer 3

• one firm dominates
• High barriers to entry
• no close substitutes
• price makers
  SR and LR : can earn supernormal profit in both due to Barriers

Problems:
- underproduction
- deadweight loss
- consumers oy high price

Question 4

Oligopoly

Answer 4

• few large firms
• high barriers
• interdependence
• use non price competition e.g. branding or ads
• high innovation (without collusion)

SR and LR : can sustain supernormal profits , may collude

Question 5

Monopolistic competition

Answer 5

• many firms, differentiated products
• low barriers
• some price control

SR : can earn supernormal profit
LR ; normal profit due to new entrants