question
perfect competition - key implications
answer
firms are price takers P=MR
in short run, firms may earn profits or losses
in the long run, economic profits are zero
in short run, firms may earn profits or losses
in the long run, economic profits are zero
question
perfect competition - profit maximization
answer
MR=MC
Since MR=P
Set P=MC to maximize profits
Since MR=P
Set P=MC to maximize profits
question
perfect competition - short run supply
answer
equal to the marginal cost curve
question
perfect competition - maintain profitable
answer
you have to meet your variable costs
in the long run all costs are variable
P>min AVC
in the long run all costs are variable
P>min AVC
question
perfect competition - shutdown decision rule
answer
shutdown when P< min AVC
a firm should still produce (sustain short run losses) if its operating loss is less than its fixed costs
a firm should still produce (sustain short run losses) if its operating loss is less than its fixed costs
question
"natural" monopolies
answer
economies of scale
economies of scope
cost complementaries
economies of scope
cost complementaries
question
"created" monopolies
answer
patents and other legal barriers
tying contracts
exclusive contracts
collusions
tying contracts
exclusive contracts
collusions
question
monopoly pricing
answer
set in the elastic range of the demand curve (where MR is positive)
produce where MR=MC
produce where MR=MC
question
monopolistic competition
answer
good for consumer - many substitutes
bad to society - P>MC
ugly to managers - P=ATC>minimum of average costs
bad to society - P>MC
ugly to managers - P=ATC>minimum of average costs
question
monopolistic competition - long run
answer
zero economic profits
question
there is no market supply curve in
answer
a monopolistic market
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