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40 Cards in this Set

  • Front
  • Back
Large # of buyers and sellers; all about equal size
Characteristics of Perfect Competition
Each firm produces a homogeneous product
Characteristics of Perfect Competition
No barriers to entry
Characteristics of Perfect Competition
In the long run Econ(profit) must = 0
Characteristics of Perfect Competition
Typical firms demand curve is perfectly elastic
Characteristics of Perfect Competition
For perfectly competitive INDUSTRY; it faces a downward sloping demand curve
Characteristics of Perfect Competition
Price takers @ the market price determined in the industry graph
Characteristics of Perfect Competition
Each firm has perfect information
Characteristics of Perfect Competition
Econ(profit) = TR-TC
includes both implicit and explicit costs
When Econ(profit) = 0
Acct(prof) > 0
Normal(prof) > 0
MR = change TR / change Output
all
TR = Price X Quantity
All
TC = ATC X Quantity
all
TR = TC
TR > TC
TC > TR
Econ(profit) = 0
Econ(profit) >0
Econ(profit) <0
P = ATC
P > ATC
P < ATC
Econ(prof) = 0
Econ(prof) > 0
Econ(prof) < 0
Econ(prof) = [P - ATC] X Quantity
[P - ATC] is the average profit
Occurs where

MR = MC
Profit Maximizing Output Rule
MR = MC
MR > MC
MR < MC
Q(PROF)MAX

INCREASE OUTPUT IN ORDER TO INCREASE ECONprof

DECREASE OUTPUT IN ORDER TO INCREASE ECONprof (NEVER WANT)
1) must be equalibrium in the industry (Qd = Qs)

2) Each firms output must be productively efficient (Qty that minimizes ATC)

3) Each firms output must be ALLOCATIVELY EFFICIENT (pdc Qty where P = MC)
Economic Efficiency
Qty that minimizes ATC

MC & ATC Cross
Productively Efficient
Produce Qty where P = MC

Where Demand and MC cross
Allocatively Efficient
the ability of a firm to price its output above its marginal costs
Monopoly Power
Shutdown Rule:

P >(equal) AVC
stay open in S-R and produce Q(prof)max
Shutdown Rule:

P < AVC
shutdown in S-R and ECON losses = TFC
Surplus transferred from one party to another but not lost to society as a whole
Wealth Transfer
One Seller (it is the industry)
Characteristics of Monopoly
Unique product (no substitutes)
Characteristics of Monopoly
Barriers to entry
Characteristics of Monopoly
Firm is a "Price Searcher or Setter"
Characteristics of Monopoly
Firm's demand is negatively sloping

Possible to increase price without sales falling to zero

Firms price > MC
Monopoly Power
Must have some monopoly power

Must be able to to identify differences in willingness to pay among customers

Must be able to separate your markets
Successful Price Discrimination
Many small independent firms
Monopolistic Competition
Differentiated Product
Monopolistic Competition
Price Searcher not price taker
Monopolistic Competition
No barriers to entry
Monopolistic Competition
Few large firms dominate the industry
Oligopoly
Mutual interdependence among firms
Oligopoly
Price-Searchers
Oligopoly
Product homogeneous or differentiated
Oligopoly
Moderate to high barriers to entry
Oligopoly