question
Characteristics of Perfect Competition Market Structure
answer
1.A larger number of buyers and sellers of the product
-no one seller can influence the price
2, A homogeneous product
-consumer does not care who they buy the product from
3. Perfect Knowledge on part of Buyers and Sellers
-no one can charge other than market price
4.Easy Entry and Exit from the market
-LONNG RUN
-no one seller can influence the price
2, A homogeneous product
-consumer does not care who they buy the product from
3. Perfect Knowledge on part of Buyers and Sellers
-no one can charge other than market price
4.Easy Entry and Exit from the market
-LONNG RUN
question
Price Takers
answer
Firms are price takers because consumers know the price, so no firm will change price because they will buy from somewhere else, so the market determines the price and the firm adjusts
question
Demand Curve for the firm
answer
-Perfectly elastic FOR THE FIRM
-downward sloping FOR THE INDUSTRY
- The demand curve is also equal to MR=P=D=AR
-downward sloping FOR THE INDUSTRY
- The demand curve is also equal to MR=P=D=AR
question
Supply Curve
answer
Fin the firms maximizing level of output (MC=MR) and make sure that Price > AVC
-The portion above where MC crosses AVC
-The portion above where MC crosses AVC
question
Average Revenue
answer
Product Price= P
-equal to marginal revenue in short run
-equal to marginal revenue in short run
question
Marginal Revenue
answer
The amount by which total revenue increase as a result of a one unit change in the quantity of output
-Change in TR/ Change in Q
-equal to average revenue and price
-Change in TR/ Change in Q
-equal to average revenue and price
question
Profit Maximization Rule
answer
-OCCURS WHERE MC=MR
-Total Profit= TR-TC
- or change in TR- change in TC
-AS FIRM EXPAND BY 1 UNIT, TOTAL PRFITS RISE BY THE AMOUNT MR EXCEEDS MC
-MAKING PROFIT IF PRICE> ATC
-Total Profit= TR-TC
- or change in TR- change in TC
-AS FIRM EXPAND BY 1 UNIT, TOTAL PRFITS RISE BY THE AMOUNT MR EXCEEDS MC
-MAKING PROFIT IF PRICE> ATC
question
Shut down Decision in the Short Run
answer
Firm will close if....
1. TR< TVC
2. AR (P) < MIN AVC
1. TR< TVC
2. AR (P) < MIN AVC
question
Entry and Exit
answer
-Firms will ENTER when TR>TC or P>ATC
-Firms will EXIT TR<TC or P<ATC
-Firms will EXIT TR<TC or P<ATC
question
Supple Schedule for perfectly Compet Firm
answer
1. Given a price
2. Use Profit max ( MC=MR) to.determine level of output that the firm will produce--> expand if MR>MC or P> AVC
(the max amount of output that the firm would place onn the market at that price)
2. Use Profit max ( MC=MR) to.determine level of output that the firm will produce--> expand if MR>MC or P> AVC
(the max amount of output that the firm would place onn the market at that price)
question
Long Run Equilibrium Conditions
answer
1.) Firm produces output where MC=MR
2.) Economic Profits=0,
-bc if there are profits, theres an incentive for entry into the industry until profts are driven out
3.) Firm produces the output where ATC is at its minimum
- this is where the long run market price is!!!!!!!!
2.) Economic Profits=0,
-bc if there are profits, theres an incentive for entry into the industry until profts are driven out
3.) Firm produces the output where ATC is at its minimum
- this is where the long run market price is!!!!!!!!
question
Long Run= Constant Cost Industry
answer
When the industry expands, the firms cost curves do not shift as output expands and contracts- only effect long run curve
question
Increase in market price/demand
answer
As prce goes up, profits go up, more resources are attracted to the industry, so increase in quantity
question
Response in long run to INCREASE in demand
answer
1. Industry output increases bc more demand
2. Number of firms in the industry increases-more entry- so shift supple curve up
3.Firm Output remains the same bc we started from long run equilibrium- produce at minimum of ATC
2. Number of firms in the industry increases-more entry- so shift supple curve up
3.Firm Output remains the same bc we started from long run equilibrium- produce at minimum of ATC
question
Response in long run to decrease in demand
answer
1. Industry output decreases bc firms left the industry
2. NUmber of firms in the industry decrease bc therer were losses
3. Firm output remained the same- bc profits go back to 0 bc firms left indusrtry
2. NUmber of firms in the industry decrease bc therer were losses
3. Firm output remained the same- bc profits go back to 0 bc firms left indusrtry
question
Long Run Supply
answer
Shows the path along which the equilibrium price and quantity move in response to changes in demand, given time for individual firms to adjust the sizes of their plants, if necessary, and given time for entry and exit to occur
- horizontal line at aheight of the min point on ATC curve
- horizontal line at aheight of the min point on ATC curve
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