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Imperfect Competitio

Imperfect Competition

QuestionAnswer
State the assumptions underlying the theory of imperfect competition? Many buyers, many sellers, product differentiation exists, freedom of entry & exit, reasonable knowledge, each firm attempts to maximise profits.
State the advantages imperfect competition offers to consumers? Greater choice, normal profit, lower prices, innovative goods/services, access to information.
State one feature of a firm in imperfect competition in the long run which is common to a firm in perfect competition? Earn normal profit because AR=AC
State the features of a firm in imperfect competition in the long run which is common to a firm in monopoly? Wasteful of resources(not produces at the lowest point of AC), downwards sloping D/C(must lower P to increase Qd), price is greater than MC (indicates more of the good could be produced).
State an example which operates under conditions of imperfect competition? Retail market for petrol
State the shape of the demand curve which faces a firm in imperfect competition? Downwards sloping left to right
State why the shape of the demand curve in imperfect competition is downwards sloping? There are many goods which are close substitutes, if a firm increase its price, there will be a reduction in demand, as some consumers will switch to the competitive goods, which have become relatively cheaper.
Define product differentiation? The goods which are produced are close substitutes/similar goods/ not identical goods.
State how product differentiation can be achieved? Branding, competitive advertising, product innovation.
Outline the equilibrium position facing a firm in imperfect competition in relation to SNP, Price and Equilibrium in the short run? SNPs are earned as AR>AC, produced Q1 and sells this output at P1, Equilibrium(E1) occurs where MC=MR.
Outline the equilibrium position facing a firm in imperfect competition in the long run in relation to cost of production and scarce resources? Not producing at the lowest point on AC at point C and they are wasting scarce resources.
Outline the equilibrium position facing a firm in imperfect competition in relation to SNP, Price and Equilibrium in the long run? SNPs are earned as AR>AC, produced Q2 and sells this output at P2, Equilibrium(E1) occurs where MC=MR.
Outline the equilibrium position facing a firm in imperfect competition in the long run in relation to cost of production and scarce resources? Not producing at the lowest point on AC at point C and they are wasting scarce resources.
Created by: deborahh
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