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Table of Contents

  1. Topic pack - Microeconomics - introduction
  2. 1.1 Competitive Markets: Demand and Supply
  3. 1.1 Competitive Markets: Demand and Supply - notes
  4. 1.1 Competitive markets - questions
  5. 1.1 Competitive markets - simulations and activities
  6. 1.2 Elasticities
  7. 1.2 Elasticities - notes
  8. Section 1.2 Elasticities - questions
  9. Section 1.2 Elasticities - simulations and activities
  10. 1.3 Government intervention
  11. 1.3 Government Intervention - notes
  12. 1.3 Government intervention - questions
  13. 1.3 Government intervention - simulations and activities
  14. 1.4 Market failure
  15. 1.4 Market failure - notes
  16. Section 1.4 Market failure - questions
  17. Section 1.4 Market failure - simulations and activities
  18. 1.5 Theory of the firm
  19. 1.5 Theory of the firm - notes (HL only)
    1. Cost theory
    2. Calculating costs
    3. Short-run
    4. Long-run
    5. Internal economies of scale
    6. External economies of scale
    7. Diseconomies of scale
    8. Long run cost curves
    9. The very long run
    10. Revenues
    11. Revenues - notes
    12. Profit
    13. Profit - notes
    14. Combining revenue and cost curves
    15. Profit maximisation - price taker
    16. Profit maximisation - price setter
    17. Alternative aims of firms
    18. Profit, sales and revenue maximisation
    19. Perfect competition
    20. Perfect competition - notes
    21. Short-run to long-run - profits
    22. Short-run to long-run - losses
    23. Shut down price, break-even price
    24. Efficient allocation of resources
    25. Monopoly and oligopoly
    26. Monopoly and oligopoly - introduction
    27. Growth and power
    28. The model of monopoly
    29. Monopoly - profit maximisation
    30. Monopoly equilibrium
    31. Monopoly v. perfect competition
    32. Economic efficiency in perfect competition
    33. Economic efficiency in perfect competition and monopoly
    34. Efficiency and market structure
    35. Monopolistic competition
    36. Monopolistic competition - notes
    37. Monopolistic competition in the short-run
    38. Monopolistic competition in the long run
    39. Oligopoly
    40. Oligopoly - notes
    41. Advertising and branding
    42. Product innovation
    43. Theories of oligopoly - non-collusive
    44. The kinked demand curve theory
    45. Kinked demand curve - change in cost
    46. Cut-price competition (predatory pricing)
    47. Theories of oligopoly - collusive
    48. Forms of collusion
    49. Price discrimination
    50. Equilibrium of the discriminating monopolist
  20. Section 1.5 Theory of the firm - questions
  21. Section 1.5 Theory of the firm - simulations and activities
  22. Print View

Efficiency and market structure

We are concerned here with concentrated (monopoly and oligopoly) and competitive markets.

Competitive markets are considered to be statically efficient - both allocatively and productively. Dynamic efficiency is another matter. Because firms are all small, no one firm can afford research and development (R&D); it would have to be done on a collective or industrial basis. This has been done, but a number of problems arise over funding levies and charges.

Concentrated markets, on the other hand, are considered to be inefficient in the short-run. They are statically inefficient, even though their AC may be significantly lower than their smaller 'perfectly competitive' equivalent. The profit motive makes them strive to be more efficient, so they may invest in R&D and may be dynamically efficient

question

1
Monopoly vs perfect competition

In the diagram below, which area represents the level of consumer surplus under perfect competition?

monop_v_pc

a)
b)
c)
d)
e)
Please select an answerNo, that's not right. This is the consumer surplus once the monopolist has taken over the industry.No, that's not right. This is a part of the deadweight welfare loss when a monopolist takes over.Yes, that's correct. The consumer surplus is the triangle above the price line and under perfect competition, the price will be set where MC=AR.No, that's not right. This is the producer surplus under perfect competition.No, that's not right. This area does not represent either producer or consumer surplus.
Check your answer

2
Monopoly vs perfect competition

In the diagram below, which area represents the level of consumer surplus under monopoly?

monop_v_pc

a)
b)
c)
d)
e)
Please select an answerYes, that's correct. This is the consumer surplus once the monopolist has taken over the industry.No, that's not right. This is a part of the deadweight welfare loss when a monopolist takes over.No, that's not right. The consumer surplus is the triangle above the price line and under perfect competition, the price will be set where MC=AR.No, that's not right. This is the producer surplus under perfect competition.No, that's not right. This area does not represent either producer or consumer surplus.
Check your answer

3
Monopoly vs perfect competition

In the diagram below, which area represents the welfare loss if a monopolist takes over a perfectly competitive industry?

monop_v_pc

a)
b)
c)
d)
e)
Please select an answerNo, that's not right. This is the consumer surplus once the monopolist has taken over the industry.No, that's not right. This is part of the deadweight welfare loss when a monopolist takes over, but you also need to include area 5 as well.No, that's not right. The consumer surplus is the triangle above the price line and under perfect competition, the price will be set where MC=AR.No, that's not right. This is the producer surplus after the monopolist has taken over.Yes, that's correct. This area is the deadweight welfare loss if a monopolist takes over. The areas were previously part of consumer or producer surplus, but are lost once the monopolist takes over and limits output.
Check your answer