Discuss whether a concentrated market is necessarily anti-competitive

Here is an essay we were set for class. As always feel free to leave any feedback below.

A concentrated market (one in which there is a high value for the n-concentration ratio) is a market in which there are few firms which possess a relatively large market share. This fulfils one of the criterion of an oligopolistic market.

Because the market consists of only a few firms we may assume that there are economies of scale to be had by producing a large output. Due to this a few large firms will be able to exploit these economies of scale and hence will be operating a lower point on their average cost curve. [...]

Are large or small companies more successful?

This was a previous Interview Question for Oxbridge Economic Applicants. Here is a sample answer I came up with.

To start with to answer this question it depends on how we are measuring size and successfulness. If we measure both in terms of profit then obviously a large firm (one which has larger profits) will be more successful when we say that large profits = successfulness. Similarly if we measure size in terms of output, labour force or number of shops/factories and successfulness by revenues then we would expect larger firms to have larger revenues (and thus be more successful) because they have the ability to sell more through their stores (which we are assuming they have more of to be considered large) and will be able to produce more due to their larger workforce. [...]

Commuters or Pensioners

Two trains are about to crash. One contains pensioners and the other containers commuters. There is a fault on both lines but you can save one group. Which do you save and why?

This was a previous question asked at an Oxbridge interview. It is more of a philosophical question than it is economic and rather than give a conclusion I will present some points below as to the advantages of saving one group over the other. Please note that the argument isn’t intended to cause offence and I completely understand that each life is very precious and no-one should be prioritised (this is completely hypothetical!!!). [...]

Can addiction be rational?

I would define a rational being as someone that aimed to maximise the utility whilst trying to minimise the costs. Addiction is something that people do because, a. they enjoy doing it, and b. there may be psychological or chemical reactions occurring that increase the cost of not consuming the good/service.

Therefore I would believe addiction to be rational because people generally do it because they enjoy doing it and thus it maximises their utility. However because they are addicted to it perhaps they are doing it many times, and this may result in the marginal utility gained decreasing over time. [...]

Oxbridge Interview Questions

The Oxbridge Interviews are coming up soon (Mine with Gonville and Caius is on the 5th!) and below are some Economic Interview Questions I have found, I’ll be answering some of them in future posts!

Why Economics?

Why Cambridge, or more specifically why this College?

Are large or small companies more successful?

Explain how the Phillip Curve arises. (Lesson here)

What are the effects of currency speculation? (Hot money is discussed here)

Compare Keynesian and Classical Macroeconomics.

Discuss the interaction between fiscal and monetary policy. (Lesson here)

Would it be feasible to have an economy entirely based on the service sector? [...]

Discuss the view that the Internet is creating markets that are nearer to the model of Perfect Competition

This was a recent essay title we were given in class (Edexcel Unit 3: Business Economics) which I thought was quite an interesting topic. Below is my essay, where I have mainly focused on 3/4 points as to why I think the internet is creating markets near to the model of perfect competition and them some evaluative points. Please add a comment in you have any other suggestions or evaluation points.

Perfect competition is a market type which meets certain criterion. This criteria is that there are many buyers and sellers, sellers are price takers, there is perfect information known by consumers, there are no barriers to entry, the product is homogeneous  firms are profit maximisers and there are no externalities. [...]

Profit Maximising Calculator

Sorry for the lack of updates over the last few days, I have been working on a profit maximising calculator which took quite a long time to produce! But it is finally done, you can check it out here. Please make sure you enter the values in the specific format outlined. You can either insert the demand function or the total revenue function (don’t insert both) and the total cost function and then the program will calculate the optimal output and the profit produced in order to maximise profits. To find out how the calculator works in principle read this lesson here. [...]

Specialisation and Division of Labour

Division of Labour is where a production procedure is split into different stages. Workers are responsible for a particular stage, usually in which their expertise lies. Thus by doing this, the maximum production for a day’s work would increase.

An equal division of labour is where a task is split into separate jobs so that it would take roughly the same amount of time to complete one job as another.

Adam Smith provided an example of this; in a day 1 worker could create a maximum of 20 pins, so 10 workers could create 200 a day. However if the production process was split into 10 different stages, with one worker on each stage the maximum production would dramatically increase to 48,000 pins produced a day. [...]

Extended Property Rights

• Property rights are considered one of the most fundamental requirements of a capitalist system, and are partly why there is need for government.
• Property rights are the legal controls of the ownership of a good.
• Property rights can be issued through legislature and regulations.
• A property right is the exclusive authority to determine how a resource is used and who it is owned by.
• The lack of property rights makes it hard to identify who is responsible for a negative externality, and who should therefore pay taxes to amend them and to solve the market failure of over-production. [...]

Price Discrimination: Motorway Service Stations

A recent survey by TravelSupermarket.com discovered that a family of 4 could be paying almost £29 for a basic lunch (sandwich, crisps, a chocolate bar and a drink) at a service station.

A 500ml of bottle water costs £1.27 on average at a motorway service station whereas it is 25p in an Asda supermarket. For a sausage roll it is 40p in Asda and the equivalent costs £2.30 at a service station.

Is this an example of price discrimination or do service stations simply have much higher costs that they have to pass on? Obviously motorway service stations don’t benefit from the economies of scale that supermarkets do, for a start the shop itself is smaller, meaning it has much less shelf space but will have high labour costs. [...]