economics, perfect competition

There are many buyers and sellers, ensuring that no single firm can influence the market price.

In perfect competition, the product is homogeneous and identical, while in monopolistic competition, products are differentiated.

In a monopoly, there is only one firm that dominates the market.

<p>Oligopoly is a market structure characterized by a few firms, where each firm is interdependent and can affect market prices.</p> Signup and view all the answers

<p>Freedom of entry is high in perfect competition but restricted in monopolies and oligopolies.</p> Signup and view all the answers

<p>Firms in a perfectly competitive market are price takers, meaning they must accept the market price and cannot set their own.</p> Signup and view all the answers

<p>Perfect knowledge allows buyers and sellers to make well-informed decisions, ensuring efficient allocation of resources.</p> Signup and view all the answers

<p>Traditional potato farming is classified under perfect competition due to the presence of many small farmers producing a homogeneous product.</p> Signup and view all the answers

<p>It means that individual consumers cannot influence the market price because their purchases are only a small fraction of total industry output.</p> Signup and view all the answers

<p>Free entry and exit encourage a large number of firms to participate in the market, promoting price-taking behavior.</p> Signup and view all the answers

<p>The primary goal of firms is profit maximization.</p> Signup and view all the answers

<p>It allows for the natural functioning of the market without distortions caused by tariffs, taxes, or subsidies.</p> Signup and view all the answers

<p>It implies that resources such as labor and raw materials can move freely between firms without restrictions.</p> Signup and view all the answers

<p>Perfect knowledge prevents any single firm from raising prices above the market equilibrium without losing customers to competitors.</p> Signup and view all the answers

<p>Barriers to entry limit the number of firms, which can lead to market power for existing firms, enabling them to influence prices.</p> Signup and view all the answers

<p>No, firms cannot earn excess profits in the long run due to free entry and exit allowing new firms to enter and drive prices down.</p> Signup and view all the answers

<p>A competitive firm's marginal revenue equals the market price, meaning it can sell any output at that price.</p> Signup and view all the answers

<p>A profit-maximizing competitive firm produces output at the level where marginal cost equals the market price.</p> Signup and view all the answers

<p>The second-order condition requires that the marginal cost curve be steeper than the marginal revenue curve.</p> Signup and view all the answers

<p>The firm maximizes profit at a market price of $8 per metric ton, producing 284 units.</p> Signup and view all the answers

<p>If the firm produces fewer than 284 units, it can increase its profit by expanding output.</p> Signup and view all the answers

<p>Producing more than 284 units leads to a situation where the price is below marginal cost, reducing profit.</p> Signup and view all the answers

<p>The firm's profit is represented as the area of a rectangle defined by the output quantity and average profit per unit.</p> Signup and view all the answers

<p>The demand curve for a competitive firm is horizontal because they can sell any quantity at the market price.</p> Signup and view all the answers

<p>The existence of a large number of sellers ensures that no single firm can affect the market price.</p> Signup and view all the answers

<p>Product homogeneity means all firms sell identical products, so no firm can raise prices without losing customers.</p> Signup and view all the answers

<p>A firm is a price taker when it must accept the market price as given and has no power to set its own prices.</p> Signup and view all the answers

<p>A firm will not lower its prices because it can sell as much as it wants at the current market price without losing customers.</p> Signup and view all the answers

<p>If a firm charges more than the market price, it would be unable to sell any of its products since consumers can buy from other firms at lower prices.</p> Signup and view all the answers

<p>Agricultural products like wheat or corn are examples of markets with product homogeneity.</p> Signup and view all the answers

<p>With a single buyer, that buyer can influence the market price, disrupting the conditions of perfect competition.</p> Signup and view all the answers

<p>Consumer choices drive competition as they will purchase the lowest-priced identical products available.</p> Signup and view all the answers

<p>$1.50</p> Signup and view all the answers

<p>284,000 units</p> Signup and view all the answers

<p>When the average total cost (ATC) is below the price at equilibrium.</p> Signup and view all the answers

<p>ATC is above the price.</p> Signup and view all the answers

<p>Price = Marginal Cost = Average Cost</p> Signup and view all the answers

<p>Consumer surplus is the area under the demand curve and above the market price line.</p> Signup and view all the answers

<p>It means the firm is covering all its costs, including opportunity costs.</p> Signup and view all the answers

<p>It indicates the highest level of profit a firm can achieve at a given quantity.</p> Signup and view all the answers

<p>The short-run supply curve is derived from the firm's marginal cost curve above the average variable cost.</p> Signup and view all the answers

<p>All supernormal profits are competed away.</p> Signup and view all the answers

<p>When consumers are unaware that products are identical or do not know the prices of competitors, a firm can raise its price while still making sales.</p> Signup and view all the answers

<p>Transaction costs are crucial because low transaction costs enable buyers to easily switch to rival firms if a supplier raises prices, promoting competition.</p> Signup and view all the answers

<p>Total Revenue (TR) is calculated by multiplying the price per unit by the quantity sold, or TR = price x quantity.</p> Signup and view all the answers

<p>The short-run equilibrium of a firm in perfect competition is defined by the condition where price equals marginal cost (P = MC).</p> Signup and view all the answers

<p>Supernormal profits indicate that a firm is earning more than the normal profit level, attracting new entrants into the market.</p> Signup and view all the answers

<p>In perfect competition, Average Revenue (AR) equals Marginal Revenue (MR), as firms are price takers.</p> Signup and view all the answers

<p>Firms determine optimal output where marginal cost (MC) equals marginal revenue (MR) to maximize profit.</p> Signup and view all the answers

<p>The demand curve for a firm in perfect competition is perfectly elastic, meaning it can sell any quantity at the market price.</p> Signup and view all the answers

<p>Low transaction costs facilitate switching to alternative suppliers, while high transaction costs might lead customers to absorb price increases.</p> Signup and view all the answers

<p>When facing rising average costs, a firm may exit the market if it cannot cover its average total costs.</p> Signup and view all the answers

<p>The short-run supply curve for a firm in perfect competition indicates the relationship between price and quantity supplied, where it rises as prices increase.</p> Signup and view all the answers

<p>The equality of price (P), average revenue (AR), and marginal revenue (MR) implies that the firm must accept the market price for its products.</p> Signup and view all the answers

<p>When firms make supernormal profits, new firms are incentivized to enter the market, increasing supply and lowering prices.</p> Signup and view all the answers

<p>Perfect information allows consumers to make informed decisions, leading to optimal purchasing behavior and driving competition.</p> Signup and view all the answers