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1944355
IB Economics: Theory of the Firm - Market Structure
Description
Mind Map on IB Economics: Theory of the Firm - Market Structure, created by veronika.salla on 01/02/2015.
Mind Map by
veronika.salla
, updated more than 1 year ago
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Created by
veronika.salla
about 9 years ago
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Resource summary
IB Economics: Theory of the Firm - Market Structure
Perfect Competition
Assumptions:
- Large number of firms
- Homogeneous products
- No barriers to entry/exit
- Symmetrical/perfect info
- Perfect resource mobility
price-taker
Price competition only
Exists theoretically
Short Run
Abnormal profit
Normal profit
Loss
Long Run
Normal profit
Effeiciency
AE: leads to P=MC
PE: leads to MC=ATC
Monopoly
Assumptions
- Only 1 firm
- Unique product
- Significant barriers to entry/exit
e.g. legal, resources, branding, asymmetric info
price-maker
No/weak competition
contrained by demand
Short Run
Abnormal profit
Normal profit
Loss
Long Run
usually same as SR
due to barriers
Inefficient
Demand: Inelastic
Monopolistic Competition
Assumptions
- Large number of firms
- No barriers to entry/exit
- Product differentiation
close substituted
price-maker
less than oligopoly & monopoly
Price competition & non-price competition
Short Run
Loss
Normal profit
Abnormal profit
Long Run
Normal prfit
Inefficient
Demand: elastic
Demand: perfectly elastic
Oligopoly
Assumptions
- Small number of firms (2-12)
- Both homogeneous and differentiated products
Considerable barriers to entry/exit
e.g. start-up costs
some have large market share
price-maker (less than monopoly)
Mutually independent
strategic behaviour
conflicting incentives
collusion & competing
Non-price competition
Short Run
Abnormal profit
Normal profit
Loss
Long Run
Abnormal profits available if cartels succeed
Inefficienct
Kinked demand curve
top: elastic
bottom: inelastic
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