3: market structures

Question 1

what is central to determining the nature of market structure in a free-market economy?

Answer 1

The extent of competition in the market.

Question 2

what are the attributes of a basic competitive strategies of perfect competition

Answer 2

zero economic profit in the long run
large number of suppliers and customers acting independently
very little product differentiation
no barriers to entry
firms are price takers (demand curve is horizontal)
strategies include maintaining market share and responsiveness to sales price
price is always equal to marginal revenue and demand
MR = MC is output at the best level for the firm

Question 3

what are the attributes and basic competitive strategies of monopoly

Answer 3

positive economic profit in long run
single firm with a unique product
significant barriers to entry
ability of the firm to set output and prices
no substitute products 
firm has increasing returns to scale

Question 4

what are attributes and basic competitive strategies of monopolistic competition

Answer 4

numerous firms with differentiated products
few barriers to entry
ability of firms to exert some influence over the price but have more control over the quantity produced
significant non price competition in the market
zero economic profits in long run (firms enter market and consumers switch to substitute products)

Question 5

what are attributes of oligopoly?

Answer 5

positive economic profit in long run
relatively few firms with differentiated products
fairly significant barriers to entry
strongly interdependent firms
kinked demand curve

Question 6

what is tacit collusion

Answer 6

firms tend to follow price changes initiated by the price leader in the market