ECONOMICS
COMPETITION AND MARKET STRUCTURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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collusion
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market power
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economies of scale
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barrier of entry
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Detailed explanation-1: -Market power refers to a company’s relative ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand or both. In markets with perfect or near-perfect competition, producers have little pricing power and so must be price-takers.
Detailed explanation-2: -Market power is the ability of a company to control prices and output. Markets dominated by a few large firms tend to have higher prices and lower output than markets with many sellers.
Detailed explanation-3: -When marginal cost is higher, a firm sets a higher price. When demand is more inelastic (so a firm has more market power), the markup is higher, so a firm sets a higher price. When demand is perfectly elastic, the markup is 1, and the firm sets its price equal to marginal cost.
Detailed explanation-4: -Oligopoly Characteristics. Profit maximization conditions: An oligopoly maximizes profits by producing where marginal revenue equals marginal costs. Ability to set price: Oligopolies are price setters rather than price takers.