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Agriculture
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What is the best example of pure competition?
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A price taker
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What is a purely competitive seller?
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Perfectly Elastic
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What is the demand curve of a purely competitive firm?
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Because they supply such a small amount
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Why is price constant to an individual firm selling in a purely competitive market?
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That they can sell as much as they want at an existing price
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What does a perfectly elastic demand curve imply?
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They will have to pay the total fixed cost
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When will a purely competitive firm shut down in the short run?
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Total Variable Cost
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When will a purely competitive firm produce in the short run?
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Total Profit
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What do firms seek to maximize?
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In the short run economic profit is produced and in the long run normal profit is produced
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What is true about concerning about purely competitive industry?
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Firms can enter and exit the market in the long run but not in the short run
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What distinguished the short run from the long run in pure competition?
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The economic profits that are already in that industry.
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What encourages new firm to enter the industry in pure competition?
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Constant Cost
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Resource prices will remain unchanged as output increases.
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Increasing Cost Industry
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As the industry expands higher resource costs are going to increase.
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Decreasing Cost Industry
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Input prices fall as the industry expand.
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They both achieve allocative and productive efficiency
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In the long run in the pure competition what happens to productive and allocative efficiency?
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MR, MC, and minimum ATC
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In the long run a purely competitive firm will operate where price is equal to what?
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the process by which new firms and new products replace dominant products
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What is creative destruction?
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Purely Competitive firm = price taker, monopoly = price maker
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What is correct?
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A single firm producing a product for which there is no close substitute.
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What does pure monopoly refer to?
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Lower the price
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What does a monopolist have to do in order to sell more output?
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They will never produce in the output range where demand is inelastic.
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Where do monopolies produce in the demand curve?
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When monopolists lowers the price to sell more output, the lower price applies to all units sold.
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Why is marginal revenue less than price in monopolies?
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A higher price will produce a smaller output than a competitive firm.
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Confronted with the same unit cost data, a monopoly producer will charge?
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The selling of a product to different customers and different prices that doesn't reflect cost differences.
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Price discrimination refers to what and how can this applied to a monopolist?
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It will charge a higher price where demand is inelastic and a lower price where demand is elastic.
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If a monopolist engages in will charge?
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The maximum price each is willing to pay
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What will a price discriminating pure monopolist charge buyers?
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When the average cost is greater than the minimus possible average cost
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What does X-inefficiency refer to?
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The don't achieve either
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What happens to productive and allocative efficiency in a monopoly?
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pure monopoly but not pure competition
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Economic profit in the long run is possible for-
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Be able to separate buyers into different markets with different price elasticities.
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To practice long-run price discrimination, a monopolist must-
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easy entry, many firms, and they do produce a differentiated product
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What are the characteristics of monopolistic competition?
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The percentage total industry sales accounted for by the four largest firms in an industry
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What is the four-firm sales concentration ratio measure?
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A monopolistically competitive industry will end up making a normal profit, not an economic profit.
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What profits do monopolistically competitive firms realize in the large run?
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Monopolistic Competition
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Which market has greater product variety?
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Pure Competition, monopolistic competition, oligopoly, pure monopoly
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As it related to the degree of competition (highest to lowest) where is monopolistic competition placed?
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They will achieve neither allocative nor productive efficiency
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Do monopolistic firms achieve allocative or productive efficiency?
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There are few, if any, barriers to entry
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How is a monopolistically competitive and purely competitive industries similar?
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There is some control over the price in monopolistic competition.
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What is a main difference between monopolistic competition and pure competition?
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A few firms producing a homogeneous or a differentiated product
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What does the term oligopoly indicate?
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A few dominant firms and substantial entry barriers
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Where are the characteristics of an oligopoly?
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Each firm in an oligopoly depend on their own pricing strategy but also depends on their rivals
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The mutual inter dependence that characterizes oligopoly arise because of what?
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A firm that is large will be able to produce at a lower unit cost than can a small firm
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If there are significant economies of scale in an industry what happens?
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The study how people or firms behave in strategic situations.
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What is the game theory?
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The price less of a factor and product differences more of a factor in consumer differences.
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The goal of product differentiation and advertising in monopolistic competition is to make-
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Competitors will match a price decrease but ignore a price increase
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What does the kinked demand theory assume?
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To earn a greater profit
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Why do oligopolistic firms engage in collusion?
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Tendency to cheat
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What is the one inherent factor that tends to destroy collusion among oligopolies?
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Cartels, informal understandings, and price leadership
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What are the major means of collision by oligopolies?
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Monopolies are government regulated whereas collusion among oligopolies may lead to similar results as a monopoly, yet having many firms may give the illusion of competition
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Oligopolies are less desirable than pure monopolies because-
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