Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product.
|
|
- Andra Matthews
- 6 years ago
- Views:
Transcription
1 Perfect Competition In this section of work and the next one we derive the equilibrium positions of firms in order to determine whether or not it is profitable for a firm to produce and, if so, what quantities of the product the firm should supply at different prices of the product. To do this, we have to consider demand conditions as well. You have already been introduced to the four standard forms of market structure: perfect competition, monopoly, monopolistic competition and oligopoly. In this section we focus on the position of a firm which operates under conditions of perfect competition. Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product. The price is determined by the interaction of demand and supply and all the participants have to accept that price. All the participants are therefore price takers they can only decide what quantities to supply or demand at that price. Conditions for Perfect Competition Perfect competition exists if the following conditions are met 1. Large number of buyers and sellers of the product: the number must be so large that no individual buyer or seller can affect the market price. 2. No collusion between sellers: each seller must act independently. 3. Homogenous goods: all the goods sold in the market must be identical. There should therefore be no reason for buyers to prefer the product of one seller to the product of another seller. 4. Freedom of entry and exit: buyers and sellers must be completely free to enter or leave the market. There must be no barriers to entry in the form of legal, financial, technological, physical or other restrictions which inhibit the free movement of buyers or sellers. 5. Perfect knowledge: all the buyers and sellers must have perfect knowledge of market conditions. For example, if one firm raises its price above the market price, it is assumed that all the buyers will know that the other firms are charging a lower price and will therefore not buy anything from the firm that is charging a higher price. 6. No government intervention: government must not influence buyers or sellers. 7. Perfectly mobile factors of production: that is, labour, capital and the other factors of production must be able to move freely from one market to another. No market meets all the requirements for perfect competition. Markets that come close to meeting these conditions are found in agriculture, for example in the markets for maize, wheat, fruit and vegetables. An individual farmer is usually regarded as the best example of a perfect competitor. However, farmers often form cooperatives to control the supply of agricultural Bishops Economics Department Page 1
2 products, and government also tends to intervene in markets for agricultural products. When this occurs, the conditions for perfect competition are no longer met. Financial markets, like the JSE Securities Exchange, also approximate perfect competition. There are many buyers and sellers, the goods (eg shares in a company) are homogeneous and anyone is free to participate. So, if perfect competition is more theoretical than practical, why bother learning about it? Perfect competition represents a standard or norm against which the functioning of all other markets can be compared. This is common practice in all branches of science Note that the word perfect in perfect competition does not mean that it is necessarily the most desirable form of competition it simply signifies the highest or most complete degree of competition. Demand for the product of a perfectly competitive firm Under perfect competition the price of a product is determined by supply and demand. The individual firm is a price taker and can sell any quantity at the market price. No firm will charge a price higher than the current market price because it will then lose all of its customers. Nor will a firm gain anything by charging a price that is lower than the existing market price, since it can sell as many units of its output as it wishes at the market price. Under perfect competition the individual firm is faced by a demand curve which is horizontal (or perfectly elastic) at the existing market price. The graph on the left shows that the price of the product (P1) is determined in the market by the forces of supply (SS) and demand (DD). The position of the individual firm is shown in the graph on the right. Bishops Economics Department Page 2
3 The firm can sell any quantity at the prevailing market price. At prices higher than P 1 the quantity demanded = zero as consumers will be able to purchase the product at a price of P 1 from any other supplier. Firms will not supply at prices lower price than P 1 because they can sell all of their output at a higher price (P 1 ). As can be seen form the table above, under perfect competition the firm receives the same price for any number of units of the product that it sells. Its marginal revenue (MR) and average revenue (AR) are thus both equal to the market price, that is, MR = AR = P. The firm s total revenue can be represented graphically by a straight line which starts at the origin and which has a slope equal to the price of the product shown below. Bishops Economics Department Page 3
4 The equilibrium of the firm under any conditions Firms want to maximise profit. Economic profit is the difference between revenue and cost (which includes normal profit). To examine the behaviour of firms, we therefore have to examine and combine their revenue and cost structures. Once these are known, two decisions have to be taken The firm must first decide whether or not it is worth producing at all. If it is worth producing, the firm must determine the level of production (ie the quantity) at which profit is maximised (or losses minimised). Two rules for profit-maximisation which apply to all firms are the shut-down rule and the profit maximising rule. The shut-down rule The shut-down rule: a firm should produce only if total revenue is equal to, or greater than, total variable cost (which includes normal profit). The shut-down rule can also be stated in terms of unit (average) costs a firm should only produce if average revenue (ie price) is equal to, or greater than, average variable cost. In the long run all costs are variable. Production should therefore only take place in the long run if total revenue is sufficient to cover all costs of production. But what about the short run, when certain costs are fixed? Should production occur only if total revenue is sufficient to cover total costs (ie total fixed costs and total variable costs)? The answer is NO. Once a firm is established, it cannot escape its fixed costs; they occur even if the firm does not produce at all. Therefore If total revenue > total variable cost OR if average revenue > average variable cost, then the difference can help cover some of the unavoidable fixed costs of the firm and it s advisable to maintain production in the short run. If total revenue = total variable costs OR if average revenue = average variable costs its loss will be the same if they continue or shut-down (ie equal to its fixed costs). In such conditions firms tend to continue production in order to retain their employees and clients. If total revenue < total variable costs OR average revenue < average variable cost, production will result in a loss greater than its fixed costs. In other words, the firm s losses will be minimised by not producing at all hence they will choose to shut-down. Bishops Economics Department Page 4
5 The Profit-Maximising Rule The second rule is that firms should produce that quantity of the product such that profits are maximised, or losses minimised. Profit is the difference between revenue and cost and profits are maximised where the positive difference between total revenue and total cost is the greatest. However, it is usually more useful to express the profit-maximisation condition in terms of revenue and cost per unit of production. The rule is that profit is maximised where marginal revenue (MR) is equal to marginal cost (MC). To explain why profits are maximised where MR = MC, it is useful to consider what happens if MR is not equal to MC. If MR > MC the firm is still making a profit on the last (extra) unit produced. Total profit increases by expanding its production until no extra profit is made on the last unit produced, that is, until MR = MC. At that quantity the firm s profit is maximised. At production levels beyond that point, MC > MR. Ie, the firm will make a loss on the production of each additional unit of output and its profit will decrease. So, profits are maximised when marginal revenue MR is just equal to marginal cost MC. In summary When MR is greater than MC (ie MR > MC), output should be expanded. When MR is equal to MC (ie MR = MC), profits are maximised. When MR is lower than MC (ie MR < MC), output should be reduced. The profit-maximising (or equilibrium) position of the firm under perfect competition We now combine the cost curves derived in the previous section, the two profit-maximising rules which apply to all firms, and the demand curve for the product of the firm, to examine the equilibrium of the firm under perfect competition. Firms in a perfectly competitive market are price takers and can only choose the output (quantity) at which it will maximise its profits (or minimise its losses). That quantity, we have seen, is where the positive difference between total revenue TR and total cost TC is at a maximum, or where marginal revenue MR is equal to marginal cost MC, provided, of course, that average revenue AR (= P) is at least equal to short-run average variable cost AVC (the shut-down rule). Bishops Economics Department Page 5
6 Equilibrium in terms of total revenue and total cost The total cost curve is shaped like a reversed S. It the total cost curve does not start at the origin, since part of the firm s cost is fixed. Total revenue (TR) of the firm under perfect competition is a straight line with a positive slope which starts at the origin and has a slope equal to the price of the product. Economic profit is the difference between TR and TC. At levels of output below Q 1 TC > TR and the firm therefore incurs economic losses (indicated by the shaded area). At Q 1 the firm s total economic profit is zero (since TR = TC). Between Q 1 and Q 2 the firm makes an economic profit at each level of output (indicated by the shaded area), since TR > TC. At Q 2 total economic profit is zero once more and at higher levels of output the firm again incurs economic losses. The firm s profit will be maximised where the positive vertical difference between TR and TC is the greatest (ie somewhere between Q 1 and Q 2 ). You can draw a tangent to the TC curve, parallel to the TR curve, such as the broken line in Figure At the point of tangency the vertical difference (ie total profit) will be at a maximum. There is, however, a way of determining the level of output at which profit is maximised without using a graph or a ruler. This is by applying the MR = MC rule which we explained earlier. Equilibrium in terms of marginal revenue and marginal cost Any firm maximises its profit (or minimises its losses) where marginal revenue MR is equal to marginal cost MC. Previously we proved that the firm s marginal revenue MR is equal to the market price P of the The profit maximising rule in the case of a perfectly competitive firm can therefore also be stated as P = MC (since MR = P). Recall from the previous section that the marginal cost curve is U-shaped. Using a numerical example we can now explain why profit is maximised when MR (or P, in this case) is equal to MC. Bishops Economics Department Page 6
7 Suppose a firm produces a product which it sells in a perfectly competitive market where the price is R10 per unit. The firm s fixed cost amounts to R5. The firm s daily output, revenue and cost are summarised in Table 12-1 and the MR and MC of the firm are also shown graphically in Figure Bishops Economics Department Page 7
8 Referring to Figure 12-5 Point a - the marginal cost MC of the first unit produced is R4. This is lower than the marginal revenue of R10 (ie the price of the product). The production of the first unit thus adds R6 (ie R10 R4) to the profit of the firm. Point b: the MC of the second unit (R6) < MR of the second unit (R10). The production of the second unit thus adds R4 (ie R10 R6) to the profit of the firm. Point c: production of the third unit costs R8. It can be sold for R10. The firm will therefore add to its profit by producing the third unit. The extra profit will be R2 (ie R10 R8). Point d: for the fourth unit MC = MR (= P) = R10 and the firm therefore makes no further profit. This serves as a signal that the point of maximum profit has been reached. Point e: if the firm produces 5 units of the product, MC (R12) > MR. The firm s profit will thus decline by R2 (ie R10 R12) if a fifth unit of the product is produced. To summarise A firm should expand its production as long as MR > MC up to the point where MR = MC (at which point profit will be maximised) At production beyond that point, MR < MC and the firm s profit will fall. The firm s profit position can be illustrated clearly by adding average cost (AC) to the diagram showing average revenue AR, marginal revenue MR and marginal cost MC. Average cost (AC) = average fixed cost (AFC) + average variable cost (AVC) Profit per unit of output (or average profit) = average cost (AC) - average revenue (AR) When AR > AC the firm is earning an economic profit. When AR = AC the firm only earns a normal profit. The following 3 diagrams show the AR, MR, AC and MC of a firm under perfect competition. In all 3 diagrams, AR and MR = P. The same set of unit cost curves is used throughout, but we show three different market prices, and therefore three different AR and MR curves. Bishops Economics Department Page 8
9 In diagram (a) the market price is P 1, which is equal to the firm s AR and MR. Profit is maximised where MR = MC. This occurs at a quantity of Q 1. At Q 1, AR > AC (which is indicated as C 1 on the vertical axis). The firm thus makes an economic profit (or supernormal profit) per unit of production of P 1 C 1. The firm s total profit is given by the shaded area C 1 P 1 E 1 M, which is equal to the profit per unit of output (P 1 C 1 ) X quantity produced (Q 1 ). Alternatively, the area representing total profit can be obtained by subtracting the firm s total cost (C 1 X Q 1 = 0C 1 MQ 1 ) from its total revenue (P 1 X Q 1 = 0P 1 E 1 Q 1 ). The difference between these two areas is the shaded area C 1 P 1 E 1 M, which represents the firm s total economic profit. In diagram (b) the market price (and therefore also the firm s AR and MR) is P2. It is equal to MC at the point where MC intersects AC (ie at the minimum point of AC). The corresponding level of output is Q2. At that level of output AR is equal to AC (and TR = TC) The firm therefore does not earn an economic profit. It does, however, earn a normal profit, since all its costs, which include normal profit, are fully covered. Bishops Economics Department Page 9
10 In diagram (c) the market price (and therefore also the firm s AR and MR) is equal to P3. MR or price is equal to MC at a quantity of Q3. At Q3 AR < AC. It therefore makes an economic loss per unit of output, (C3 - P3). Total economic loss = P 3 C 3 ME 3. Whether or not the firm should continue production will depend on the level of AR (ie P3) relative to the firm s average variable cost AVC, which is not shown in the figure. (shut-down rule) Bishops Economics Department Page 10
CH 14: Perfect Competition
CH 14: Perfect Competition Characteristics of Perfect Competition 1. Both buyers and sellers are price takers A price taker is a firm (or individual) who takes the price determined by market supply and
More informationLecture 11. Firms in competitive markets
Lecture 11 Firms in competitive markets By the end of this lecture, you should understand: what characteristics make a market competitive how competitive firms decide how much output to produce how competitive
More informationECONOMICS SOLUTION BOOK 2ND PUC. Unit 6. I. Choose the correct answer (each question carries 1 mark)
Unit 6 I. Choose the correct answer (each question carries 1 mark) 1. A market structure which produces heterogenous products is called: a) Monopoly b) Monopolistic competition c) Perfect competition d)
More informationPerfect Competition. What is a market structure? What is a Perfectly Competitive Market/Perfect Competition? David Kelly
What is a market structure? Perfect Competition A market structure refers to the conditions under which a good or service is bought and sold. The notes that follow examine two extremes - perfect competition
More informationMICROECONOMICS - CLUTCH CH PERFECT COMPETITION.
!! www.clutchprep.com CONCEPT: THE FOUR MARKET MODELS Market structure describes the environment in which a firm operates, determined by the Perfect Competition Monopolistic Competition Oligopoly Monopoly
More informationnot to be republished NCERT Chapter 6 Non-competitive Markets 6.1 SIMPLE MONOPOLY IN THE COMMODITY MARKET
Chapter 6 We recall that perfect competition was theorised as a market structure where both consumers and firms were price takers. The behaviour of the firm in such circumstances was described in the Chapter
More informationSome of the assumptions of perfect competition include:
This session focuses on how managers determine the optimal price, quantity and advertising decisions under perfect competition. In earlier sessions we have looked at the nature of competitive markets.
More informationUnit 6: Non-Competitive Markets
Unit 6: Non-Competitive Markets Name: Date: / / Simple Monopoly in the Commodity Market A market structure in which there is a single seller is called monopoly. The conditions hidden in this single line
More informationAGENDA Mon 10/12. Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp Q #7
AGENDA Mon 10/12 Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp 173-176 Q #7 QOD #21: Competitive Farming A purely competitive wheat farmer can sell
More informationChapter 1- Introduction
Chapter 1- Introduction A SIMPLE ECONOMY Central PROBLEMS OF AN ECONOMY: scarcity of resources problem of choice Every society has to decide on how to use its scarce resources. Production, exchange and
More informationFirms in Competitive Markets
1 Basic Economics Chapter 14 Firms in Competitive Markets Competitive markets (1) Market with many buyers and sellers (e.g., ) (2) Trading identical products (e.g., ) (3) Each buyer and seller is a price
More informationPerfect Competition CHAPTER 14. Alfred P. Sloan. There s no resting place for an enterprise in a competitive economy. Perfect Competition 14
CHATER 14 erfect Competition There s no resting place for an enterprise in a competitive economy. Alfred. Sloan McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
More information23 Perfect Competition
23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven
More information2007 Thomson South-Western
WHAT IS A COMPETITIVE MARKET? A competitive market has many buyers and sellers trading identical products so that each buyer and seller is a price taker. Buyers and sellers must accept the price determined
More informationSlides and Images, Worth Publishers Inc. 8-1
Perfect Competition Michael J. Murray Slides and Images, Worth Publishers Inc. 8-1 Market Structure Analysis By observing a few industry characteristics, we can predict pricing and output behavior of the
More informationECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions
www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount
More informationChapter 14 Perfectly competitive Market
Chapter 14 Perfectly competitive Market But first lets look at this Profit Maximization Profit Maximization This occurs where marginal revenue (MR) = marginal cost (MC). MR = MC Marginal revenue is the
More informationUNIT 4 FORMS OF MARKET & PRICE DETERMINATION POINTS TO REMEMBER Market implies a system with the help of which the buyers and seller of a commodity or service come to contact with each other and complete
More informationCh. 9 LECTURE NOTES 9-1
Ch. 9 LECTURE NOTES I. Four market models will be addressed in Chapters 9-11; characteristics of the models are summarized in Table 9.1. A. Pure competition entails a large number of firms, standardized
More information2007 Thomson South-Western
Monopolistic Competition Characteristics: Many sellers Product differentiation Free entry and exit In the long run, profits are driven to zero Firms have some control over price What does the costs graph
More informationBUSINESS ECONOMICS (PAPER IV-PART I)
BUSINESS ECONOMICS (PAPER IV-PART I) (60 MARKS) Q1: Macroeconomics is also called economics (a) applied (b) aggregate (c) experimental (d) none Q2: A Study of how increase in the corporate income tax rate
More informationCH 13. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.
Class: Date: CH 13 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. One requirement for an industry to be perfectly competitive is that a. sellers and buyers
More informationChapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting
Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
PRACTICE FOR PERFECT COMPETITION Fatma Nur Karaman MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is the difference between perfect competition
More informationUnit 6 Perfect Competition and Monopoly - Practice Problems
Unit 6 Perfect Competition and Monopoly - Practice Problems Multiple Choice Identify the choice that best completes the statement or answers the question. 1. One characteristic of a perfectly competitive
More informationECON 102 Brown Final Exam (New Material) Practice Exam Solutions
www.liontutors.com ECON 102 Brown Final Exam (New Material) Practice Exam Solutions 1. B A very large percent of their earnings comes from economic rent 2. B Any funds left, after everyone who has a claim
More informationMonopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials
LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were
More informationMonopoly. The single seller or firm referred to as a monopolist or monopolistic firm. Characteristics of a monopolistic industry
Monopoly Monopoly: a market structure in which there is only one seller of a good or service that has no close substitutes and entry to the market is completely blocked. The single seller or firm referred
More informationPure Competition in the Short Run
08 Pure Competition in the Short Run McGraw-Hill/Irwin Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved. LO1 8-2 Four Market Models Pure competition Pure monopoly Monopolistic competition
More informationIntroduction. Learning Objectives. Chapter 24. Perfect Competition
Chapter 24 Perfect Competition Introduction Estimates indicate that since 2003, the total amount of stored digital data on planet Earth has increased from 5 exabytes to more than 200 exabytes. Accompanying
More informationPractice Exam 3: S201 Walker Fall with answers to MC
Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility
More informationMarket structures Perfect competition
Market structures Perfect competition Market Structures Market structure refers to the number and size of buyers and sellers in the market for a good or service. A market can be defined as a group of firms
More information= AFC + AVC = (FC + VC)
Chapter 13-14: Marginal Product, Costs, Revenue, and Profit Production Function The relationship between the quantity of inputs (workers) and quantity of outputs Total product (TP) is the total amount
More informationTextbook Media Press. CH 12 Taylor: Principles of Economics 3e 1
CH 12 Taylor: Principles of Economics 3e 1 Monopolistic Competition and Differentiated Products Monopolistic competition refers to a market where many firms sell differentiated products. Differentiated
More informationECON 200. Introduction to Microeconomics
ECON 200. Introduction to Microeconomics Homework 5 Part II Name: [Multiple Choice] 1. A firm is a natural monopoly if it exhibits the following as its output increases: (d) a. decreasing marginal revenue
More informationECON 102 Brown Final Exam Practice Exam Solutions
www.liontutors.com ECON 102 Brown Final Exam Practice Exam Solutions 1. B 2. C 3. C All products are identical (homogenous) in perfect competition so there is no such thing as brand preference. 4. C Breakeven
More informationPerfect Competition CHAPTER14
Perfect Competition CHAPTER14 MARKET TYPES The four market types are Perfect competition Monopoly Monopolistic competition Oligopoly MARKET TYPES Perfect Competition Perfect competition exists when Many
More informationWhat is a Competitive Market?
Firms in Competitive Markets Competitive market (1) Market with many buyers and sellers (e.g., ) (2) Trading identical products (e.g., ) (3) Each buyer and seller is a price taker (no price influence)
More informationSyllabus item: 42 Weight: 3
1.5 Theory of the firm and its market structures - Production and costs Syllabus item: 42 Weight: 3 Definition: Total product (TP): The total output that a firm produces, using its fixed and variable factors
More informationCONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37
CONTENTS Introduction to the Series iv 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply 17 3 Elasticities 37 4 Government Intervention in Markets 44 5 Market Failure 53 6 Costs of
More informationChapter Summary and Learning Objectives
CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect
More informationFirms in Competitive Markets
14 Firms in Competitive Markets PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 What is a Competitive Market? Competitive market Perfectly competitive market Market with
More informationFirms in Competitive Markets. UAPP693 Economics in the Public & Nonprofit Sectors Steven W. Peuquet, Ph.D.
Firms in Competitive Markets UAPP693 Economics in the Public & Nonprofit Sectors Steven W. Peuquet, Ph.D. 1 These slides are for use only as part of a formal instructional course and may not be copied,
More informationINTRODUCTION ECONOMIC PROFITS
INTRODUCTION This chapter addresses the following key questions: What are profits? What are the unique characteristics of competitive firms? How much output will a competitive firm produce? Chapter 7 THE
More informationECONOMICS CHAPTER 9: FORMS OF MARKET
ECONOMICS CHAPTER 9: FORMS OF MARKET Class: XII(ISC) 2017-2018 Q1) Difference between Oligopoly and Monopolistic competition. Basis Oligopoly Monopolistic competition 1. Meaning It is that form of market
More informationAssessment Schedule 2016 Economics: Demonstrate understanding of the efficiency of different market structures using marginal analysis (91400)
NCEA Level 3 Economics (91400) 2016 page 1 of 11 Assessment Schedule 2016 Economics: Demonstrate understanding of the efficiency of different market structures using marginal analysis (91400) Assessment
More informationQuiz #5 Week 04/12/2009 to 04/18/2009
Quiz #5 Week 04/12/2009 to 04/18/2009 You have 30 minutes to answer the following 17 multiple choice questions. Record your answers in the bubble sheet. Your grade in this quiz will count for 1% of your
More informationEastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester
Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2014 15 Fall Semester ECON101 Introduction to Economics I Final Exam Type A 26 January 2015 Duration: 100 minutes
More information4. Which of the following statements about marginal revenue for a perfectly competitive firm is incorrect? A) TR
Name: Date: 1. Which of the following will not be true of a perfectly competitive market? A) Buyers and sellers will have an imperceptible effect on the market. B) Firms can freely enter and exit the market.
More informationPerfect Compe,,on Mr Traynor
Perfect Compe,,on Mr Traynor Economics Note 8 Leaving Cert 5 th Year, Ailesbury Rd MARKET STRUCTURES There are four market structures on the Leaving Cert course. They are 1) Perfect Compe,,on 2) Imperfect
More informationChapter 10 Pure Monopoly
Chapter 10 Pure Monopoly Multiple Choice Questions 1. Pure monopoly means: A. any market in which the demand curve to the firm is downsloping. B. a standardized product being produced by many firms. C.
More informationEdexcel (B) Economics A-level
Edexcel (B) Economics A-level Theme 4: Making Markets Work 4.1 Competition and Market Power 4.1.1 Spectrum of competition Notes Characteristics of monopoly, oligopoly, imperfect and perfect competition
More informationECON 311 MICROECONOMICS THEORY I
ECON 311 MICROECONOMICS THEORY I Profit Maximisation & Perfect Competition (Short-Run) Dr. F. Kwame Agyire-Tettey Department of Economics Contact Information: fagyire-tettey@ug.edu.gh Session Overview
More informationCOMPETITION AND MARKETS BEFORE YOU BEGIN. Market Structures. Looking at the Chapter. Date Period. Chapter
COMPETITION AND MARKETS BEFORE YOU BEGIN Looking at the Fill in the blank spaces with the missing words. Market Structures Perfect Competition sellers product No barriers to entry Price taker Produce where
More informationLesson 3-2 Profit Maximization
Lesson 3-2 Profit Maximization Standard 3b: Students will explain the 5 dimensions of market structure and identify how perfect competition, monopoly, monopolistic competition, and oligopoly are characterized
More informationECONOMICS SOLUTION BOOK 2ND PUC. Unit 5
Unit 5 I. Choose the correct answer (each question carries 1 mark) 1. In perfect competition, buyers and sellers are: a) Price makers b) Price takers c) Price analysts d) None of the above 2. A situation
More informationShort-Run Costs and Output Decisions
Semester-I Course: 01 (Introductory Microeconomics) Unit IV - The Firm and Perfect Market Structure Lesson: Short-Run Costs and Output Decisions Lesson Developer: Jasmin Jawaharlal Nehru University Institute
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason
More informationFinal Term Examination Spring 2006 Time Allowed: 150 Minutes. Question No. 1 Marks :1. Question No.
www.vustuff.com WWW.VUTUBE.EDU.PK ECO402 Microeconomic s Final Term Examination Spring 2006 Time Allowed: 150 Minutes Question No. 1 Marks :1 Economies of scale and economies of scope are synonymous. Question
More informationAP Microeconomics Review Session #3 Key Terms & Concepts
The Firm, Profit, and the Costs of Production 1. Explicit vs. implicit costs 2. Short-run vs. long-run decisions 3. Fixed inputs vs. variable inputs 4. Short-run production measures: be able to calculate/graph
More informationTotal revenue Quantity. Price Quantity Quantity
s in Competitive Markets WHAT IS A COMPETITIVE MARKET? A perfectly competitive market has the following characteristics: There are many buyers and sellers in the market. The goods offered by the various
More informationPWNI I'IHITIIBIFI UNIVERSITY EXAMINER(S) INSTRUCTIONS FACULTY OF MANAGEMENT SCIENCES QUALIFICATION: BACHELOR OF ACCOUNTING
. I'IHITIIBIFI UNIVERSITY OF SCIENCE FII'ID TECHNOLOGY FACULTY OF MANAGEMENT SCIENCES DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE QUALIFICATION: BACHELOR OF ACCOUNTING QUALIFICATION CODE: Z3BECO LEVEL:
More informationThe Four Main Market Structures
Competitive Firms and Markets The Four Main Market Structures Market structure: the number of firms in the market, the ease with which firms can enter and leave the market, and the ability of firms to
More informationWeek One What is economics? Chapter 1
Week One What is economics? Chapter 1 Economics: is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives
More information2) All combinations of capital and labor along a given isoquant cost the same amount.
Micro Problem Set III WCC Fall 2014 A=True / B=False 15 Points 1) If MC is greater than AVC, AVC must be rising. 2) All combinations of capital and labor along a given isoquant cost the same amount. 3)
More informationRefer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1
1) A monopoly is an industry with A) a single firm in which the entry of new firms is blocked. B) a small number of firms each large enough to impact the market price of its output. C) many firms each
More informationChapter 13. What will you learn in this chapter? A competitive market. Perfect Competition
Chapter 13 Perfect Competition 214 by McGraw-Hill Education 1 What will you learn in this chapter? What the characteristics of a perfectly competitive market are. How to calculate average, marginal, and
More informationPractice Exam 3: S201 Walker Fall 2004
Practice Exam 3: S201 Walker Fall 2004 I. Multiple Choice (3 points each) 1. Which of the following statements about the short-run is false? A. The marginal product of labor may increase or decrease. B.
More informationEcon 111 2nd MT 16 17
Econ 111 2nd MT 16 17 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Starting from a situation in which a firm in a competitive market produces and sells
More informationASSIGNMENT MEMORANDUM
Page 1 of 5 ASSIGNMENT MEMORANDUM SUBJECT : MICRO ECONOMICS (MIC) ASSIGNMENT : 1 st SEMESTER 2009 SPECIFIC INSTRUCTIONS Answer ALL questions. SECTION A 40 MARKS QUESTION 1 (MULTIPLE CHOICE) [40] 1.1 e
More informationECON 2100 (Summer 2016 Sections 10 & 11) Exam #3C
ECON 21 (Summer 216 Sections 1 & 11) Exam #3C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. is a market structure in which there is one single seller of a unique
More informationECON 2100 (Summer 2016 Sections 10 & 11) Exam #3D
ECON 21 (Summer 216 Sections 1 & 11) Exam #3D Multiple Choice Questions: (3 points each) 1. I am taking of the exam. D. Version D 2. is a market structure in which there is one single seller of a unique
More informationWhere are we? Second midterm on November 19. Review questions on th course web site. Today: chapter on perfect competition
Where are we? Second midterm on November 19 Review questions on th course web site. Today: chapter on perfect competition Topic for the second paper: Pick a chapter in Ariely after Chapter 4 and compare
More informationECONOMICS FOR HEALTH POLICY SPECIAL FEATURES OF HEALTH CARE FROM COSTS OF PRODUCTION TO MARKET SUPPLY CURVES
ECONOMICS FOR HEALTH POLICY SPECIAL FEATURES OF HEALTH CARE FROM COSTS OF PRODUCTION TO MARKET SUPPLY CURVES 1 THE SIMPLEST CASE: ONLY ONE VARIABLE INPUT INTO PRODUCTION A FARMER S TOTAL, AVERAGE, AND
More informationfull revision of micro economics
www.examhelplogger.com full revision of micro economics JOIN CLASS 12 TH FREE BATCH ON WHATS APP M 98 91 291 604 MICRO ECONOMICS Studies The Behaviour Of An Individual Economic Unit. Example : Demand Of
More informationMICROECONOMICS - CLUTCH CH MONOPOLISTIC COMPETITION.
!! www.clutchprep.com CONCEPT: CHARACTERISTICS OF MONOPOLISTIC COMPETITION A market is in monopolistic competition when: Nature of Good: The goods for sale are, but not identical - Products are said to
More informationAssignment of Producer s Equilibrium and supply
Assignment of Producer s Equilibrium and supply Marks 16 2008-09(2) (3)set 1. Give one reason for a rightward shift in supply curve. (1) 2. Why is average total cost greater than average variable cost?
More informationCHAPTER 4 PRICE DETERMINATION IN DIFFERENT MARKETS. Unit 1. Meaning and Types of Markets. Copyright -The Institute of Chartered Accountants of India
CHAPTER 4 PRICE DETERMINATION IN DIFFERENT MARKETS Unit 1 Meaning and Types of Markets PRICE DETERMINATION IN DIFFERENT MARKETS Learning Objectives At the end of this unit you will be able to : know the
More informationREDEEMER S UNIVERSITY
REDEEMER S UNIVERSITY Km 46/48 Lagos Ibadan Expressway, Redemption City, Ogun State COLLEGE OF MANAGEMENT SCIENCE DEPARTMENT OF ECONOMICS AND BUSINESS STUDIES COURSE CODE /TITLE ECO 202/Microeconomics
More informationGraded exercise questions. Level (I, ii, iii)
Graded exercise questions Level (I, ii, iii) 248 MICRO ECONOMICS LEVEL 1 GRADED EXERCISE QUESTIONS (LEVEL I, II, III) INTRODUCTION 1. Why does an economic problem arise? 2. What is economics about? 3.
More informationFour Market Models. 1. Perfect Competition 2. Pure Monopoly 3. Monopolistic Competition 4. Oligopoly
Four Market Models 1. Perfect Competition 2. Pure Monopoly 3. Monopolistic Competition 4. Oligopoly Perfect Competition Chapter 14 Perfect Competition Characteristics 1. Very Large Numbers Many buyers/sellers
More informationWHAT IS A COMPETITIVE MARKET?
Chapter 14. Firms in Competitive Markets WHAT IS A COMPETITIVE MARKET? A perfectly competitive market has the following characteristics: There are many buyers and sellers in the market. small relative
More informationMicro Economics M.A. Economics (Previous) External University of Karachi Micro-Economics
Micro Economics M.A. Economics (Previous) External University of Karachi Micro-Economics Annual Examination 1997 Time allowed: 3 hours Marks: 100 Maximum 1) Attempt any five questions. 2) All questions
More informationFirms in Competitive Markets
Firms in Competitive Markets Yan Zeng Version 1.0.2, last revised on 2014-02-24. Abstract Study notes based on (Mankiw, 1998, pp. 263-302). The Costs of Production The amount that the firm receives for
More informationFIRMS IN COMPETITIVE MARKETS
14 FIRMS IN COMPETITIVE MARKETS WHAT S NEW IN THE FOURTH EDITION: The rules for profit maximization are written more clearly. LEARNING OBJECTIVES: By the end of this chapter, students should understand:
More informationa) I, II and III. b) I c) II and III only. d) I and III only. 2. Refer to the PPF diagram below. PPF
1. Suppose that - at a given level of an economic activity - marginal social cost is greater than marginal social benefit. Which of the following statements is TRUE? I. Social surplus would be higher at
More informationLevel 3 Economics, 2015
91400 914000 3SUPERVISOR S Level 3 Economics, 2015 91400 Demonstrate understanding of the efficiency of different market structures using marginal analysis 2.00 p.m. Wednesday 18 November 2015 Credits:
More informationQuiz #4 Week 04/05/2009 to 04/11/2009
Quiz #4 Week 04/05/2009 to 04/11/2009 You have 30 minutes to answer the following 15 multiple choice questions. Record your answers in the bubble sheet. Your grade in this quiz will count for 1% of your
More informationMARKETS. Part Review. Reading Between the Lines SONY CORP. HAS CUT THE U.S. PRICE OF ITS PLAYSTATION 2
Part Review 4 FIRMS AND MARKETS Reading Between the Lines SONY CORP. HAS CUT THE U.S. PRICE OF ITS PLAYSTATION 2 On May 14, 2002 Sony announced it was cutting the cost of its PlayStation 2 by 33 percent,
More informationa. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run
I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.
More informationMICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION. Professor Charles Fusi
MICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION Professor Charles Fusi Learning Objectives Identify the characteristics of a perfectly competitive market structure Discuss the process by which a perfectly
More informationChapter 6. Competition
Chapter 6 Competition Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1-1 Chapter 6 The goal of this
More information4. A situation in which the number of competing firms is relatively small is known as A. Monopoly B. Oligopoly C. Monopsony D. Perfect competition
1. Demand is a function of A. Firm B. Cost C. Price D. Product 2. The kinked demand curve explains A. Demand flexibility B. Demand rigidity C. Price flexibility D. Price rigidity 3. Imperfect competition
More informationCOVENANT UNIVERSITY NIGERIA TUTORIAL KIT OMEGA SEMESTER PROGRAMME: ECONOMICS
COVENANT UNIVERSITY NIGERIA TUTORIAL KIT OMEGA SEMESTER PROGRAMME: ECONOMICS COURSE: ECN 121 DISCLAIMER The contents of this document are intended for practice and leaning purposes at the undergraduate
More informationChapter 11 Perfect Competition
Chapter 11 Perfect Competition Introduction: To an economist, a competitive firm is a firm that does not determine its market price. This type of firm is free to sell as many units of its good as it wishes
More informationPractice Exam 3: S201 Walker Fall 2009
Practice Exam 3: S201 Walker Fall 2009 I. Multiple Choice (3 points each) 1. Which of the following statements about the short-run is false? A. The marginal product of labor may increase or decrease. B.
More informationPerfect competition the competitive firm s supply decision. Microeconomics
Perfect competition the competitive firm s supply decision Microeconomics Industries and the number of firms An industry is the set of all firms making the same product. The output of an industry is the
More information8 Perfect Competition
8 Perfect Competition CHAPTER 8 PERFECT COMPETITION 167 Figure 8.1 Depending upon the competition and prices offered, a wheat farmer may choose to grow a different crop. (Credit: modification of work by
More informationSample Exam Questions/Chapter 12. Use the following to answer question 1: Figure: Short-Run Costs
Sample Exam Questions/Chapter 12 Use the following to answer question 1: Figure: Short-Run Costs 1. (Figure: Short-Run Costs) Look at the figure Short-Run Costs. At the given price, the most profitable
More information1. For a monopolist, present the standard diagram showing the following:
ECON 202: Principle of Microeconomics Name: Fall 2005 Bellas Second Midterm - Answers You have two hours and twenty minutes to complete this exam. Answer all questions, explain your answers, label axes
More information