Podcast
Questions and Answers
Which industry most closely approximates the perfectly competitive model?
Which industry most closely approximates the perfectly competitive model?
- Cigarette
- Automobile
- Wheat farming (correct)
- Newspaper
How is the price of a commodity determined in the market period given its supply?
How is the price of a commodity determined in the market period given its supply?
- Market demand curve alone
- Market supply curve alone
- Market demand curve and market supply curve (correct)
- None of the above
At what point are total profits maximized for a firm?
At what point are total profits maximized for a firm?
- TR equals TC
- TR curve and TC curve are parallel and TC exceeds TR
- TR curve and TC curve are parallel and TR exceeds TC (correct)
- TR curve and TC curve are parallel
What defines the optimum level of output for a perfectly competitive firm?
What defines the optimum level of output for a perfectly competitive firm?
At what condition does a firm's shutdown point occur?
At what condition does a firm's shutdown point occur?
In long-run equilibrium for a perfectly competitive firm, what holds true?
In long-run equilibrium for a perfectly competitive firm, what holds true?
When the demand curve is elastic, what can be said about MR?
When the demand curve is elastic, what can be said about MR?
For a pure monopolist, what defines the optimal level of output?
For a pure monopolist, what defines the optimal level of output?
What is likely to happen to a monopolist incurring losses in the short run in the long run?
What is likely to happen to a monopolist incurring losses in the short run in the long run?
Which statement about equilibrium in monopolist firms is correct?
Which statement about equilibrium in monopolist firms is correct?
Why can a monopolist achieve pure profits in the long run?
Why can a monopolist achieve pure profits in the long run?
What effect does imposing a maximum price at the intersection of the monopolist’s SMC and demand curves have?
What effect does imposing a maximum price at the intersection of the monopolist’s SMC and demand curves have?
Which consequence results from the imposition of a per unit tax on a monopolist?
Which consequence results from the imposition of a per unit tax on a monopolist?
Which form of monopoly regulation is potentially the most beneficial for consumers?
Which form of monopoly regulation is potentially the most beneficial for consumers?
In a perfectly competitive market, a firm faces a price of $80 and has the cost function C(Q) = 40 + 8Q + 2Q^2. What is the most appropriate output level for the firm in the short run?
In a perfectly competitive market, a firm faces a price of $80 and has the cost function C(Q) = 40 + 8Q + 2Q^2. What is the most appropriate output level for the firm in the short run?
When operating under monopoly conditions, what would be a significant consequence of a firm's cost function C(qi) = 100 + 50qi - 4qi^2 + qi^3?
When operating under monopoly conditions, what would be a significant consequence of a firm's cost function C(qi) = 100 + 50qi - 4qi^2 + qi^3?
Flashcards
Perfectly Competitive Industry
Perfectly Competitive Industry
An industry with many firms producing identical products, where no single firm can influence the market price.
Market Period
Market Period
Time period where supply is fixed, and price is solely determined by market demand and supply.
Profit Maximization
Profit Maximization
The point where total revenue (TR) equals total cost (TC).
Perfect Competition - Optimal Output
Perfect Competition - Optimal Output
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Shutdown Point
Shutdown Point
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Short-run Supply Curve (Perfect Competition)
Short-run Supply Curve (Perfect Competition)
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Long-Run Equilibrium (Perfect Competition)
Long-Run Equilibrium (Perfect Competition)
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Elastic Demand Curve
Elastic Demand Curve
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Monopolist Short-Run Losses
Monopolist Short-Run Losses
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Monopolist Long-Run Equilibrium
Monopolist Long-Run Equilibrium
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Monopolist Maximum Price Impact
Monopolist Maximum Price Impact
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Per-Unit Tax Impact on Monopolist
Per-Unit Tax Impact on Monopolist
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Perfect Competition Output Decision
Perfect Competition Output Decision
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Perfect Competition Short-Run Profit
Perfect Competition Short-Run Profit
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Monopoly Short-Run Supply
Monopoly Short-Run Supply
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Monopoly vs. Perfect Competition Cost Function
Monopoly vs. Perfect Competition Cost Function
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Study Notes
Perfectly Competitive Model
- Industries most similar to a perfectly competitive model include wheat farming.
- Price in a market period is determined by both supply and demand curves.
Total Profit Maximization
- Total profits are maximized when the total revenue (TR) curve is above the total cost (TC) curve and they are parallel.
Optimum Output for a Perfectly Competitive Firm
- The optimum output level occurs where marginal revenue (MR) equals marginal cost (MC), and MC is rising.
Shutdown Point
- The shutdown point is where price (P) equals average variable cost (AVC).
- This means total losses equal total fixed costs (TFC).
- At this point, the firm will shut down if price falls below AVC.
Short-Run Supply Curve
- The short-run supply curve for a perfectly competitive firm is the portion of the marginal cost (MC) curve above the shut-down point.
- It's the rising portion of MC above the minimum of AVC.
Long-Run Equilibrium
- In the long run equilibrium of a perfectly competitive firm and industry, price (P) equals marginal revenue (MR), marginal short-run cost (SMC) and long-run cost (LMC), and the lowest point on the long-run average cost (LAC) curve.
Demand Curve and MR
- When the demand curve (is elastic) the marginal revenue will be positive.
Pure Monopolist Equilibrium
- The optimum output level for a pure monopolist occurs where marginal revenue (MR) equals marginal short-term cost (SMC).
- In the best case, price (P) equals SMC.
- A monopolist might break even, make a profit, or incur losses in the short term.
Long-Run Monopolist Behavior
- If monopolists incur a loss in the short run, in the long run, they might exit the market or stay in and seek to break even.
Monopoly Regulations
- Price control, lump-sum tax, and per-unit tax are forms of monopoly regulation. Consumers will likely benefit from price control.
Perfectly Competitive Firm Output
- A firm in a perfectly competitive market should produce the quantity where the market price ($80) equals marginal cost (MC) in the short run.
- This should generate the supply function for the firm.
- The firm's profit will be dictated by its price and cost functions in the long run.
- Long-run adjustments are usually dictated by new entrants and exits of firms in the market; supply and demand will adjust in the long run.
Firm Cost Functions and Supply
- A firm's cost function in terms of quantity produced (qi) defines production costs.
- A short-run supply function is influenced by a firm's cost function, and perfect competition vs monopoly factors.
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