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15 Cards in this Set
- Front
- Back
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What can create barriers to entry into an industry (thus preventing greater competition among sellers)?
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Startup costs because technology or capital is needed
Legal obstacles (regulations), patents, copyrights Demand size needs (large demand might be needed to cover costs) = "natural monopoly" Availability of natural resources (e.g., oil, iron, diamond) |
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What determines the degrees of competition in a market?
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Ease of entry
Product Differentiation Information (you know where to find the cheaper products) Number of Buyers |
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Market with the least degree of competition?
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Perfectly competitive market
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Market with the most degree of competition?
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Monopoly market
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What are the characteristics of a perfectly competitive market?
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Easy entry, perfect substitute goods across seller, perfect information, many buyers, and each firm is a price taker
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produce as long as MR is greater than or equal to MC
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Optimal production rule
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Note that MR = P in perfectly competitive markets. Why?
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The price always stays constant
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The optimal production rule implies that optimal production is achieved when MR = MC.
a) Why stopping production when MR is greater than MC might not be optimal? |
There is room for more additional profit
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The optimal production rule implies that optimal production is achieved when MR = MC.
b) Why stopping production when MR is less than MC is not optimal? |
You are losing money
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Shutdown rule: A firm should stay in operation (producing or selling output) as long as _ __ _______ ____ __ _____ __ ___ because then revenues will cover __ _____ ____ __ ___ _____ costs.
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P is greater than or equal to AVC; at least part of the fixed
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the marginal cost curve is also know as the?
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supply curve
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What is the shutdown rule in the long run?
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Stay in the market if P is greater than or equal to ATC
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In equilibrium, the profit of a perfectly competitive firm tends to be zero. Why?
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Company won't be profitable, if profit is less than 0, then many firms will exit the market and if the profit is greater than 0, more firms will join the market
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What does "zero long-run economic profit" mean in practice?
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Implicit Costs
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In reality, would all perfectly competitive firms make zero economic profit in the long run? Why?
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Yes, they would be better than their companies and more efficient
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