1 MASTER 11 - Compe tition I
MASTER 11 - Compe tition
De; 1n 'I): m on
Whera?-Oifferent firms are trying to sell a similar product to a consumer.
Why do firms compete?
• To stay in a market - Small firms will want to survive in the SR
• To maximise profits - This can be used to finance expansion or develop new
products
• To enter a new market
~ ow does competition help consumers?
• Firms know that if their costs are too high, competitors can enter the industr y
and prise customers away from incumbents.
• Low costs are therefore importa nt as it is a way of lowering prices and poaching
customers away from competitors.
• The increased customer base will increase the market share for firms and lead
to higher revenue and possibly.
• Hence, low costs ensures that firms are efficient and consumers benefit from
low prices.
On the space below: Draw a diagram to show the impact of increased competition .
Price
S1
S2
- 7 -r--i
Pl I
P2
I I
I I
I I
I I
I !
I '
I
Ql Q2 Quantity
MASTER 11 - Compe tition
De; 1n 'I): m on
Whera?-Oifferent firms are trying to sell a similar product to a consumer.
Why do firms compete?
• To stay in a market - Small firms will want to survive in the SR
• To maximise profits - This can be used to finance expansion or develop new
products
• To enter a new market
~ ow does competition help consumers?
• Firms know that if their costs are too high, competitors can enter the industr y
and prise customers away from incumbents.
• Low costs are therefore importa nt as it is a way of lowering prices and poaching
customers away from competitors.
• The increased customer base will increase the market share for firms and lead
to higher revenue and possibly.
• Hence, low costs ensures that firms are efficient and consumers benefit from
low prices.
On the space below: Draw a diagram to show the impact of increased competition .
Price
S1
S2
- 7 -r--i
Pl I
P2
I I
I I
I I
I I
I !
I '
I
Ql Q2 Quantity
