Podcast
Questions and Answers
Which of the following is NOT a feature of perfect competition?
Which of the following is NOT a feature of perfect competition?
- Significant barriers to entry (correct)
- Large number of buyers and sellers
- Homogeneous products
- Free entry and exit
In the short run, a firm continues to operate if:
In the short run, a firm continues to operate if:
- P < ATC
- P > AVC (correct)
- P = ATC
- P < AVC
The long-run equilibrium in perfect competition is characterized by:
The long-run equilibrium in perfect competition is characterized by:
- P = MC = MR
- P = ATC
- Zero economic profit
- All of the above (correct)
A monopoly is a market structure where:
A monopoly is a market structure where:
The demand curve for a monopolist is:
The demand curve for a monopolist is:
Profit maximization for a monopolist occurs when:
Profit maximization for a monopolist occurs when:
Price discrimination occurs when a monopolist:
Price discrimination occurs when a monopolist:
In a perfectly competitive market, how is the price determined?
In a perfectly competitive market, how is the price determined?
Compared to perfect competition, a monopolist produces:
Compared to perfect competition, a monopolist produces:
What shape does a perfectly competitive firm's demand curve take?
What shape does a perfectly competitive firm's demand curve take?
When should a perfectly competitive firm shut down its operations?
When should a perfectly competitive firm shut down its operations?
Which of the following statements is true regarding economic profit in the long run for perfectly competitive firms?
Which of the following statements is true regarding economic profit in the long run for perfectly competitive firms?
What leads to a perfectly competitive firm maximizing profit?
What leads to a perfectly competitive firm maximizing profit?
What occurs when new firms enter a perfectly competitive market?
What occurs when new firms enter a perfectly competitive market?
How is total revenue calculated for a perfectly competitive firm?
How is total revenue calculated for a perfectly competitive firm?
What do sunk costs refer to in economic terms?
What do sunk costs refer to in economic terms?
Flashcards
Monopoly
Monopoly
A market structure with only one seller and no close substitutes for the good or service.
Demand Curve for a Monopolist
Demand Curve for a Monopolist
The demand curve for a monopolist slopes downwards because it is the same as the market demand.
Marginal Revenue (MR) for a Monopolist
Marginal Revenue (MR) for a Monopolist
The additional revenue earned from selling one more unit of output. It is always less than the price for a monopolist.
Profit Maximization for a Monopolist
Profit Maximization for a Monopolist
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Barriers to Entry in a Monopoly
Barriers to Entry in a Monopoly
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Welfare Cost of Monopoly
Welfare Cost of Monopoly
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Price Discrimination
Price Discrimination
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Natural Monopoly
Natural Monopoly
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Price Determination in Perfect Competition
Price Determination in Perfect Competition
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Demand Curve in Perfect Competition
Demand Curve in Perfect Competition
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Total Revenue in Perfect Competition
Total Revenue in Perfect Competition
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Marginal Revenue in Perfect Competition
Marginal Revenue in Perfect Competition
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Economic Profit
Economic Profit
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Accounting Profit
Accounting Profit
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Sunk Costs
Sunk Costs
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Profit Maximization in Perfect Competition
Profit Maximization in Perfect Competition
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Study Notes
Perfect Competition
- Price Determination: The industry's supply and demand determine the price. Firms in perfect competition are price takers.
- Demand Curve: A perfectly competitive firm's demand curve is horizontal at the market price.
- Total Revenue (TR): Calculated as Price × Quantity or Average Revenue × Quantity.
- Marginal Revenue (MR): Equal to price.
- Economic Profit: Total revenue minus explicit and implicit costs.
- Accounting Profit: Excludes implicit costs.
- Sunk Costs: Costs that cannot be recovered.
- Profit Maximization: Occurs when marginal cost (MC) equals marginal revenue (MR).
- Shutdown Point: If price falls below average variable cost (AVC), a firm should shut down immediately.
- Long-Run Equilibrium: Firms earn zero economic profit in the long run.
- Short-Run Supply Curve: A perfectly competitive firm's short-run supply curve is its marginal cost curve above the average variable cost (AVC).
- Market Entry: New firms entering a perfectly competitive market increases supply and drives down prices, leading to zero economic profit in the long term.
- Characteristics: Homogeneous products, free entry and exit, large number of buyers and sellers.
- Short Run Operation: A firm continues to operate in the short run if price (P) is greater than average variable cost (AVC).
- Long Run Characteristics: A long-run equilibrium in perfect competition is characterized by P=MC=MR, P=ATC, and zero economic profit.
Monopoly
- Market Structure: A single seller exists in the market.
- Demand Curve: Downward sloping, meaning the firm has market power to influence price.
- Marginal Revenue (MR): Less than price.
- Profit Maximization: Occurs when marginal revenue (MR) equals marginal cost (MC).
- Barriers to Entry: Economies of scale, legal restrictions, and high startup costs.
- Welfare Cost: Monopoly leads to underproduction compared to perfect competition, resulting in a deadweight loss.
- Price Discrimination: Charging different prices to different buyers based on willingness to pay.
- Natural Monopoly: Economies of scale dominate production.
- Output Compared to Perfect Competition: Monopolies produce less output and charge a higher price compared to perfectly competitive markets.
- Deadweight Loss: A reduction in overall economic welfare caused by underproduction in a monopoly.
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