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6 Cards in this Set

  • Front
  • Back
What are the advantages of profit?
-Improve or invest goods
-Good fro stockholders
-Expand your business
-Increase pay "bonus"
-Sense of success
What are the disadvantages of profit?
-Pay higher taxes
-Greediness- discourages production of goods
-Quality goods (you want to save money)
In a competitive market, the price is always _______ and each firm has a _____ demand curve.
Stable; flat
The competitive market has 6 characteristics- what are they?
Competitive Market:
1. Many firms & markets & several buyers
2. Each firm has the same knowledge/information available for supply/demand; perfect knowledge
3. All goods are identical (ceteris paribus)
4. Competitive price = Marginal Cost Curve = Average Total Cost = Marginal Revenue = Average Revenue (PC=MC=ATC=MR)
5. Easy entry into the market
6. Normal or zero economic profit
What is the Profit Maximization Rule?
That is, the rule says that the monopoly should increase output up to the level where the marginal cost curve intersects the marginal revenue curve, in order to maximize its profits. The price charged is the corresponding price on the demand curve. Notice that this is a two-stage analysis:

* at the first stage, the marginal cost, shown in red, and the marginal revenue, shown in light green determine the output. Profit maximizing output is the output at which they intersect, shown by the gold line.
* at the second stage, the output and the demand curve determine the price. Trace up the vertical gold line to the dark green demand curve, and that's the profit-maximizing price.

Monopoly Pm > MR = MC (price & profit is bigger)

Competition Pc = MR = MC
What are the 7 characteristics of Monopoly?
Characteristics of Monopoly
1. Only one seller, but several buyers
2. Strong barriers to entry into industry
3. Supplies & production are constrained
4. Prices are not flexible
5. Practice price discrimination
6. Always realize economic profit because Pm > MR = MC
7. No pressure to decrease price or improve quality of product