3.1.3,4

Objectives of firms

Profit maximisation

Sales maximisation

Increase market share

Social/environmental concerns

Competition

Perfect competition- many companies that sell the same product or service and no one has enough market power to be able to set prices on the product or service

Monopoly- A market where there is one dominant producer who controls the supply and trade of said commodity Monopoly power- The ability to set price in a market

Oligopoly- A market where there is a few/ small number of producers who are interdependent on price and supply to the market.

Duopoly- a situation in which two suppliers dominate the market for a commodity or service.

Concentration ratio

Expresses a firms market share as a %

In a monopoly a firm will have a 25%+ concentration ratio

Pure monopoly- 1 firm with 100% concentration ratio

Oligopoly- When 3 firms have 60%+ concentration ratio

Allocative efficiency

A property of an efficient market whereby all goods and services are optimally distributed among buyers in an economy. e.g. a baker has iced 10 doughnuts in the morning and there is 10 customers wanting iced doughnuts.

Benefits+ drawbacks of monopolies

Benefits

Drawbacks

  • Little consumer choice

High prices set which can price consumers out

Restricts output to market

Low unit costs can be invested into R&D to make a great product for consumers ( Economies of scale)

Price stability

Firms who acheive monopoly status may just be the best in their market- most innovative