7.6 Different market structures

The degree of competition that a firm experiences is determined only by the barriers to entry into its market.

With the help of a diagram(s), evaluate this statement. [20]

With the help of a diagram, evaluate the impact on consumers and producers of an increase in market contestability. [20]

Subnormal and supernormal profits are only experienced in the short run and only by firms in perfect competition.

With the help of diagrams, evaluate this statement. [20]

Monopolies restrict output to raise prices and exploit consumers. With the help of a diagram, assess the extent to which a government should intervene in monopoly markets. [20]

Oligopolies are able to avoid price competition while maintaining supernormal profits in the long run.

Evaluate this statement. [20]

The long-term equilibrium position in perfect competition is frequently used to illustrate efficient resource allocation in a free market economy.

Explain why this is so and consider what prevents efficiency from being achieved. [20]

Evaluate, with the aid of a diagram(s), whether excess profit (supernormal profit) is always necessary for the continued existence of firms in perfect competition and monopoly. [20]

A government allows the merger of two large firms in the same industry.

With the help of a diagram, evaluate the view that this merger should not have been allowed. [20]

The model of perfect competition is the ideal form of market structure because it is the most efficient.

With the help of diagrams, evaluate this statement. [20]

Evaluate the view that monopolistically competitive firms will always charge lower prices and operate more efficiently than a monopoly firm. [20]

Some firms in oligopoly markets choose to collude rather than engage in price competition. This will lead to higher prices and a less efficient allocation of resources.

Evaluate this statement. [20]

Monopoly firms will always aim to maximise profits and limit pricing is the only way to ensure that these profits are maintained in the long run. Discuss the extent to which you agree with this statement. [12]

b) Explain what economists mean by collusion and consider the view that collusion will occur only in a certain type of market structure. [13]

a) High market concentration ratios are closely linked to oligopoly market structures. Explain what this means and consider its importance in relation to the pricing policy of an oligopoly firm. [12]

a) Firms in perfect competition and firms in monopolistic competition will only achieve normal profits in the long run. This means that firms in both these types of market structure are equally efficient. Discuss, with the help of diagrams, the extent to which you agree with this statement. [12]

b) Interdependence is a key characteristic of oligopoly firms. This creates a problem regarding the pricing decisions made by such firms. Explain this statement and discuss the extent to which game theory can help to solve this problem. [13]

b) Discuss the extent to which monopoly producers and the consumers of their products might benefit from the existence of barriers to entry. [13]

a) Explain the relationship between marginal revenue and average revenue and their role in determining the output and profit of a profit maximising firm in a perfectly competitive market. [12]

a) 'A firm in a perfectly competitive market can make either a supernormal profit or a loss in the short run but will only make normal profit in the long run.'

Assess whether this statement is true. [12]

b) Discuss the view that a firm operating in a perfectly competitive market will achieve economic efficiency but a monopoly firm will not. [13]