6 Monopolistic Define monopolistic competition and Explain that monopolistic competition is closely related to perfect competition explain the importance of its competition, but that some of the assumptions of perfect competition have underpinning assumptions. been relaxed, most importantly the assumption of identical products. - Explain and illustrate with diagrams Show that as a result of brand loyalty, the demand curve will not be 7 the short run and long run equilibrium horizontal and that therefore there is now a difference between AR and price and output for the firm. MR. Revisit previous teaching to show (again), both numerically and diagrammatically, that the MR line will be twice the gradient of the demand curve/AR line. Explain and evaluate the efficiency of monopolistically competitive markets. Show short run and long run equilibrium in monopolistic competition, showing that in neither case will there be either allocative or productive efficiency. Explain that advertising and product differentiation will form an important part of competition in such markets. 7 Monopoly Define monopoly and explain the Explain that in theory monopoly is a market with a single firm dominating importance of its underpinning the market, but that examples of pure monopoly are rare (e.g. water assumptions. firms/Network Rail). Hence in reality, we need to look at market - concentration, and the broad concept of monopoly power. Compare, using diagrams, the short 8 run and long run equilibrium positions Discuss the conditions necessary for monopoly to become established in perfect competition with those of (cost structure, entry barriers), and look at the characteristics of monopoly. monopoly. Show that as a result of entry barriers, abnormal profits can be earned in the short and long run. Explain and evaluate the potential Barriers to entry look at the forms of entry barrier e.g. legal licences, – – costs and benefits of monopoly, for patents. Trademarks, resource based vertical integration, retained – example, price discrimination, lack of abnormal profits, cost based economies of scale, first mover advantage – contestability, efficiency against the and strategic advertising, product differentiation, research and – benefits of economies of scale and development, limit pricing. natural monopoly.
6 - 7 Monopolistic competition Define monopolistic competition and explain the importance of its underpinning assumptions. Explain and illustrate with diagrams the short run and long run equilibrium price and output for the firm. Explain and evaluate the efficiency of monopolistically competitive markets. Explain that monopolistic competition is closely related to perfect competition, but that some of the assumptions of perfect competition have been relaxed, most importantly the assumption of identical products. Show that as a result of brand loyalty, the demand curve will not be horizontal and that therefore there is now a difference between AR and MR. Revisit previous teaching to show (again), both numerically and diagrammatically, that the MR line will be twice the gradient of the demand curve/AR line. Show short run and long run equilibrium in monopolistic competition, showing that in neither case will there be either allocative or productive efficiency. Explain that advertising and product differentiation will form an important part of competition in such markets. 7 - 8 Monopoly Define monopoly and explain the importance of its underpinning assumptions. Compare, using diagrams, the short run and long run equilibrium positions in perfect competition with those of monopoly. Explain and evaluate the potential costs and benefits of monopoly, for example, price discrimination, lack of contestability, efficiency against the benefits of economies of scale and natural monopoly. Explain that in theory monopoly is a market with a single firm dominating the market, but that examples of pure monopoly are rare (e.g. water firms/Network Rail). Hence in reality, we need to look at market concentration, and the broad concept of monopoly power. Discuss the conditions necessary for monopoly to become established (cost structure, entry barriers), and look at the characteristics of monopoly. Show that as a result of entry barriers, abnormal profits can be earned in the short and long run. Barriers to entry – look at the forms of entry barrier e.g. legal – licences, patents. Trademarks, resource based – vertical integration, retained abnormal profits, cost based – economies of scale, first mover advantage and strategic – advertising, product differentiation, research and development, limit pricing.
Eduqas%20Economics%20Course%20Outline%20(from%20September%202015).docx