Firm and Market Structures Flashcards Preview

CFA Level 1 - Quantitative Methods > Firm and Market Structures > Flashcards

Flashcards in Firm and Market Structures Deck (26)
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1
Q

What Market Structure?
Number of Sellers- Many Firms
Barriers to Entry - Very Low
Nature of Substitute Profits - Very good substitutes
Nature of competition - Price only
Pricing Power - None
Ex.’s - Burger King vs. McDonalds vs. Wendys

A

Perfect Competition

2
Q

What Market Structure?
Number of Sellers- Many Firms
Barriers to Entry - Low
Nature of Substitute Profits - Good substitutes, but differentiated
Nature of competition - Price, marketing features
Pricing Power - Some
Ex.’s - Ford vs. Chevy vs. GM

A

Monopolistic Competition

3
Q

What Market Structure?
Number of Sellers- Few Firms
Barriers to Entry - High
Nature of Substitute Profits - Very good substitutes or differentiated
Nature of competition - Price, marketing structures
Pricing Power - Some to Significant
Ex.’s - Coke vs. Pepsi

A

Oligopoly

4
Q
What Market Structure?
Number of Sellers- Few Firms
Barriers to Entry - Very High
Nature of Substitute Profits - No good substitutes
Nature of competition - Advertising 
Pricing Power - Significant
Ex.'s - Electric
A

Monopoly

5
Q

In perfect competition, producer firms have no influence on pricing.

A

Market Supply and Demand determine pricing

*Individual demand schedule is perfectly elastic (horizontal when graphed)

6
Q

The increase in total revenue from selling one more unit of a good/service.

A

Marginal Revenue

7
Q

In perfect competition, MR = price

A

Profit Maximizing firms produces quantity Q* when MC=MR = P = ATC

8
Q

LR equilibrium output level for perfectly competitive firms is where MR=MC=ATC

A

@ which economic cost = 0 at this point

9
Q

In Short Run, Market demand increases, price and quantity increase

A

10
Q

A permanent change in demand leads to the entry of firms to, or exit of firms from, an industry.

A

11
Q

Total Revenue - (explicit costs + implicit costs)

A

Economic Profit

12
Q

Firm structure where,
P > MC
ATC /= minimum for quantity produced
P* is slightly higher than perfect competition

A

Monopolistic Competition

13
Q

4 Models for oligopoly price and quantity

A
  1. Kinked Demand Curve Model
  2. Cournot Duopoly
  3. Nash Equilibrium
  4. Stackelberg Dominant Firm
14
Q

Model for oligopoly that is based on the assumption that an increase in firms product price will not be followed by its competitors, but a decrease in price will.

A

Kinked Demand Curve Model

* the quantity at the kink in them model is profit maximizing

15
Q

Model for oligopoly that considers 2 firms and a constant MC. Firms determine quantities periodically and simultaneously changing until equal.

A

Cournot Duopoly

16
Q

Model where the equilibrium is reach when the choices of all firms are such that there is not other choice that makes any firm better off (collusion).

A

Nash Equilibrium

17
Q

Model where a dominant firm runs the price and quantity of the product, and the competing firms alter accordingly

A

Dominant Firm Model

18
Q

Firm structure that are price searchers with imperfect information. The firm must determine price and quantity combination that will maximize profits.

A

Monopoly

  • To maximize profits, MR = MC.
  • Inefficient
19
Q

Charging different customers different prices for the same product/service.

A

Price Discrimination

20
Q

Monopolistic firm will produce less goods at higher prices than a competitively firm.

A

21
Q

When factors of production lead to a single firm supplying the entire market demand for the product.

A

Natural Monopoly

22
Q

Under perfect competition structure, the supply function …

A

has MC curve above its AVC curve. Sum the quantities supplied at each price across all firms in the market

23
Q

In oligopoly, monopoly and monopolistic competition structure, supply functions…

A

are not well defined. Quantities depend on firms MC, demand and MR.

24
Q

Pricing Strategy under each market structure

A

Perfect Competition – product quantity where P = MC = MR
Monopoly – Q @ MR = MC < P (price searchers)
Monopolistic Competition Produce Q @ MR=MC
Oligopoly depends on the model used

25
Q

The sum or percentage market shares of the largest N-firms in a market

A

N-firm concentration ratio

26
Q

Sum of the squares of the market shares of the largest firms in the market.
* barriers to entry aren’t considered in either option

A

Herfindahl-Hirschman Index