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What occurs to the long-run supply curve if production costs increase?
What occurs to the long-run supply curve if production costs increase?
If demand increases by 25 units and supply only increases by 10 units due to rising costs, what can be inferred about the new equilibrium point?
If demand increases by 25 units and supply only increases by 10 units due to rising costs, what can be inferred about the new equilibrium point?
What does the long-run supply curve indicate when production costs do not change?
What does the long-run supply curve indicate when production costs do not change?
Which of the following correctly describes the long-run supply adjustment when new firms enter the market?
Which of the following correctly describes the long-run supply adjustment when new firms enter the market?
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In the context of market equilibrium, what happens when supply and demand curves shift?
In the context of market equilibrium, what happens when supply and demand curves shift?
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What type of market is represented by hairdressing salons?
What type of market is represented by hairdressing salons?
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Which market structure is characterized by many small buyers and sellers with no product differentiation?
Which market structure is characterized by many small buyers and sellers with no product differentiation?
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What type of market does the world market for coffee exemplify?
What type of market does the world market for coffee exemplify?
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Which market structure do industrial chemicals in Canada belong to?
Which market structure do industrial chemicals in Canada belong to?
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What distinguishes commercial breweries in Canada in terms of market structure?
What distinguishes commercial breweries in Canada in terms of market structure?
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Which of the following best describes the role of price in perfect competition?
Which of the following best describes the role of price in perfect competition?
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Which feature is NOT characteristic of a perfect competition market?
Which feature is NOT characteristic of a perfect competition market?
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What is a good reason for considering the stock market as a good example of perfect competition?
What is a good reason for considering the stock market as a good example of perfect competition?
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What is the total revenue (TR) when the output (Q) is 4?
What is the total revenue (TR) when the output (Q) is 4?
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At which output level does Marshall's Meat Ltd. start making a profit?
At which output level does Marshall's Meat Ltd. start making a profit?
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What is the total cost (TC) at an output level of 6?
What is the total cost (TC) at an output level of 6?
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What is the total profit (T∏) when the output (Q) is 3?
What is the total profit (T∏) when the output (Q) is 3?
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How much total revenue does Marshall's Meat Ltd. generate when the output is 8?
How much total revenue does Marshall's Meat Ltd. generate when the output is 8?
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What is the break-even level of output for Marshall’s Meat Ltd. based on the provided data?
What is the break-even level of output for Marshall’s Meat Ltd. based on the provided data?
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Which output level results in the highest total profit for Marshall's Meat Ltd.?
Which output level results in the highest total profit for Marshall's Meat Ltd.?
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What is the total profit (T∏) at an output level of 0?
What is the total profit (T∏) at an output level of 0?
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What is the break-even level of output?
What is the break-even level of output?
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At which level of output is total profit (T∏) maximized?
At which level of output is total profit (T∏) maximized?
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At an output level of 4, what is the total revenue (TR)?
At an output level of 4, what is the total revenue (TR)?
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What happens to total profit when output increases from 5 to 6?
What happens to total profit when output increases from 5 to 6?
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At which level of output would the firm experience a loss?
At which level of output would the firm experience a loss?
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What is the relationship between price, average revenue, and marginal revenue for competitive firms?
What is the relationship between price, average revenue, and marginal revenue for competitive firms?
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At an output level of 7, what is the total profit?
At an output level of 7, what is the total profit?
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How is total revenue calculated?
How is total revenue calculated?
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What is the relationship between total revenue and total costs at an output of 6?
What is the relationship between total revenue and total costs at an output of 6?
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When does maximum profit occur for a firm?
When does maximum profit occur for a firm?
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What can be inferred about demand in a competitive market?
What can be inferred about demand in a competitive market?
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What is the formula for marginal revenue?
What is the formula for marginal revenue?
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What is the total profit formula stated in the content?
What is the total profit formula stated in the content?
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What does total revenue do as more units are sold?
What does total revenue do as more units are sold?
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Which statement about market behavior is correct?
Which statement about market behavior is correct?
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What defines an industry in microeconomics?
What defines an industry in microeconomics?
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Which of the following statements about perfect competition is true?
Which of the following statements about perfect competition is true?
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In which type of market do sellers have low control over prices?
In which type of market do sellers have low control over prices?
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How does the entry and exit of firms affect an industry?
How does the entry and exit of firms affect an industry?
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What type of market structure is characterized by few sellers and substantial control over price?
What type of market structure is characterized by few sellers and substantial control over price?
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In which market structure is it easiest to enter the market?
In which market structure is it easiest to enter the market?
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Which of the following is NOT a characteristic of perfect competition?
Which of the following is NOT a characteristic of perfect competition?
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What is the typical example of a product in a perfectly competitive market?
What is the typical example of a product in a perfectly competitive market?
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In an oligopoly market structure, how is price typically controlled?
In an oligopoly market structure, how is price typically controlled?
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What best describes the long-run supply curve in a perfectly competitive market?
What best describes the long-run supply curve in a perfectly competitive market?
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Study Notes
Perfect Competition
- Perfect competition is a market structure where all buyers and sellers are price takers.
- Key characteristics include: many small buyers and sellers, undifferentiated products, easy entry and exit for both buyers and sellers.
- Firms in perfect competition have little effect on market price. The market price becomes the firm's demand.
- A firm maximizes its total profits when marginal cost equals marginal revenue (MC = MR).
Industry vs. Market
- Industry: A group of producers producing similar products.
- Market: The interaction between producers and consumers.
Market Characteristics
- Markets differ based on the types of products offered and the number of buyers/sellers.
- Markets are classified into different groups based on the type of product and number of firms in the industry.
Different Types of Markets
| Market Type | Number of Firms | Type of Product | Ease of Entry | Seller's Control over Price | Examples |
|---|---|---|---|---|---|
| Perfect Competition | Many | Identical | Easy | None | Commodities like wheat |
| Monopolistic Competition | Many | Differentiated | Easy | Low | Convenience stores, restaurants |
| Undifferentiated Oligopoly | Few | Identical | Difficult | Moderate | Oil refining, lumber |
| Differentiated Oligopoly | Few | Differentiated | Difficult | Substantial | Automobiles, soft drinks |
| Monopoly | One | Unique | Very difficult | Substantial | Public utilities, cable companies |
Test Your Understanding - Examples
- Hairdressing salons - monopolistic competition
- Industrial chemicals in Canada - undifferentiated oligopoly
- Commercial breweries in Canada - differentiated oligopoly
- World market for coffee - perfect competition
- Rogers Cable in Ontario - monopoly
Perfect Competition and the Market System
- Perfect competition is a market in which all buyers and sellers are price takers.
- Conditions necessary for perfect competition: numerous small buyers and sellers, no product differentiation (undifferentiated product) and easy entry and exit
Total Average and Marginal Revenues
- Total Revenue (TR): Total quantity sold (Q) times price (P) (TR = Q × P)
- Average Revenue (AR): The amount of revenue received per unit sold (AR = TR/Q or P).
- Marginal Revenue (MR): The extra revenue derived from one more unit (MR = ΔTR/ΔQ)
- In competitive markets, Price = Average Revenue = Marginal Revenue (P = AR = MR)
Profit and Output
- Total Profit (π): The difference between total revenue (TR) and total costs (TC). (π = TR − TC)
- Break-Even Output: The output level where total revenue equals total costs (TR= TC). Zero economic profit is obtained.
Marginal Approach to Profit Maximization
- A firm maximizes profits by producing at the output level where marginal cost (MC) equals marginal revenue (MR).
- If marginal revenue (MR) is greater than marginal cost (MC), increase output to increase profit
- If marginal revenue (MR) is less than marginal cost (MC), decrease output to reduce costs and increase profit
Shutdown Price
- A firm should continue producing as long as price is above the average variable cost (P > AVC).
- If price is below the average variable cost, the firm should shut down to minimize losses
Decision Making
- Calculating various costs (average variable cost, marginal cost, average cost) enables firms to make informed decisions on output levels.
- Based on the relationship between cost curves and price, firms can determine whether to produce more, less, or shut down temporarily
- The shutdown price is the price that is just sufficient to cover a firm's variable costs.
Long Run Supply of the Industry
- Increasing Cost Industry: Prices of resources and products rise as industry grows
- Decreasing Cost Industry: Prices of resources and products fall as industry grows.
- Constant Cost Industry: Prices of resources and products remain unchanged as the industry grows
Key Concepts to Remember
- Key concepts of perfect competition. The factors that determine how firms make decisions based on market, industry and firm-level analysis.
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Description
Explore the key concepts of perfect competition and understand the differences between industry and market. Learn about market characteristics and the types of markets based on product types and firm numbers. This quiz will test your knowledge of a fundamental market structure in economics.
