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