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four market models
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pure competition
pure monopoly
monopolistic competition
oligopoly
pure monopoly
monopolistic competition
oligopoly
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pure competition
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- very large number of sellers
- standardized product,
- price takers (sellers that have no pricing power)
- standardized product,
- price takers (sellers that have no pricing power)
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pure monopoly
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- one seller industry
- restrict supply to maximize profits
- restrict supply to maximize profits
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monopolistic competition
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- 20-70 firms that provide most of the output for the industry
- products are not identical
- non price competition (advertising, brand loyalty)
- products are not identical
- non price competition (advertising, brand loyalty)
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oligopoly
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- Very few sellers - handful of producers control majority of the industry output
- Products can be the same or different.
- Price changes of one firm can all firms in industry ( can cause price wars )
- Products can be the same or different.
- Price changes of one firm can all firms in industry ( can cause price wars )
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We study pure competition because it
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produces ideal results in terms of low-cost production and allocative efficiency, and can be used as a basis of comparison
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Consider the statement: "Even if a firm is losing money, it may be better to stay in business in the short run." This statement is
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true if the loss is less than the fixed cost
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The firm should produce in the short run so long as the price
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exceeds the average variable cost
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When an industry is purely competitive, price can be substituted for marginal revenue in the MR = MC rule because
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the demand curve is perfectly elastic and the price is constant regardless of the quantity demanded, so the MR is constant and equal to the price
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If a firm's current revenues are less than its current variable costs, it should shut down
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immediately
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If a firm's current revenues are less than its current variable costs and it decides to shut down, this decision
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may be temporary until the price of the product increases
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A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which
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TR exceeds TC by as much as possible. correct
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If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which:
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MR = MC
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When should a company use the TR-TC approach?
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If in the short run they can realize a profit or a loss less than Fixed Fixed Costs
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Price Taker
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...
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Break even point
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MR=MC=ATC
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MR=MC can also look like..
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P=MC
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if you want to find the spot to maximize profit look at..
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where the numbers for MC and MR are the closest
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To find Economic loss on a graph you...
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find where MR=MC and the follow down until you hit the ATC curve then finish drawing the box
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