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Market structures, Efficiency, The objectives of firms, Types of entry…

- - - - Unable to influence market price. The market price remains constant no matter the output.
- - - - Limited market size
      - High economies of scale
      - A firm owning all resources
  - - - allocative inefficient - Underconsumption of goods because QPM>QAE, leading to welfare loss. - lowering consumer surplus
      - Excess supply because of high prices - rationing out consumers that are not willing and able to consume (cannot afford). They are often the lower income groups. Can lead to equity issues particularly when the good or service are necessities.,
      - productively inefficient because there is no competition
      - Monopsony power - single employer. Firm can set wages below the optimal quantity. This reduce workers' welfare.
      - Less choice for consumers, lower welfare
      - Externalities arise when P>MC, underconsumption; whereas when P<MC, overconsumption
        
        The marginal cost/benefit only accounts for the MPC/MPB but not the external cost/benefit. This is because firms evade part of the true or real cost of production by dumping externality on third parties. Too much consumption, for example, leads to scared resources being misallocated to markets that produce negative externalities.
    - - Economies of scale
      - Possible dynamic efficiency, researching and developing which leads to better products and methods to produce with a lower cost. Consumers can benefit from better choices
      - The reward of patents may encourage investment
- - - - A rise in marginal cost does not change the profit maximising quantity, illustrating that firms compete through better packaging, quality and features of product, rather than price.
    - - Firms are too scared to change prices at equilibrium. Increasing in price means firm lose profit. Reducing price may lead to a price war - firms lose market share and revenue.
- - - - The economy can, theoretically, achieve AE when markets that has P<MC reallocating resources to markets where P>MC until all markets achieved P=MC
- - - - Managers may therefore take excessive and unnecessary risks which may have higher reward, but comes with high risks of the business closing down and losing a lot of money. This is moral hazard where an agent takes more risks knowing that someone else promised to bear the burden of those risks. Shareholders, however, often want steady returns and in the long run growth of the business. They may not want to take high risks.