A Level Economics Theme 3 Revision Notes
When a firm is operating at:
• Price = Marginal cost, it’s allocatively efficient
• Minimum efficient scale, it’s productively efficient
Factors influencing the number (and behaviour) of firms in any given market:
• How much information (eg. about prices, recipes, technology) firms have about the
• The number and size of firms already in the market
• How easy it is for new firms to enter the market (barriers to entry)
• The extent to which the product from all firms in the market is viewed by consumers as the same
(homogenous)
• How much the decisions of one firm affect the others in the market (interdependence)
A spectrum of possible market structures
1. The number and size of firms in the market
a. One firm only - a monopoly
b. A market in which a small number of large firms together dominate the market - an oligopoly
c. A market dominated by small firms with limited ability to influence prices - monopolistic
competition
d. A large number of small firms where none are able to dominate the market or influence prices -
perfect competition
Measuring market share: Market concentration
When a firm is operating at:
• Price = Marginal cost, it’s allocatively efficient
• Minimum efficient scale, it’s productively efficient
Factors influencing the number (and behaviour) of firms in any given market:
• How much information (eg. about prices, recipes, technology) firms have about the
• The number and size of firms already in the market
• How easy it is for new firms to enter the market (barriers to entry)
• The extent to which the product from all firms in the market is viewed by consumers as the same
(homogenous)
• How much the decisions of one firm affect the others in the market (interdependence)
A spectrum of possible market structures
1. The number and size of firms in the market
a. One firm only - a monopoly
b. A market in which a small number of large firms together dominate the market - an oligopoly
c. A market dominated by small firms with limited ability to influence prices - monopolistic
competition
d. A large number of small firms where none are able to dominate the market or influence prices -
perfect competition
Measuring market share: Market concentration
