Podcast
Questions and Answers
Which characteristic is NOT a defining feature of perfectly competitive markets?
Which characteristic is NOT a defining feature of perfectly competitive markets?
- Many buyers and sellers
- Free entry and exit
- Differentiated products (correct)
- Perfect information
Why are firms in perfectly competitive markets considered 'price takers'?
Why are firms in perfectly competitive markets considered 'price takers'?
- They must accept the prevailing market price because of the large number of competitors selling identical products. (correct)
- They have government subsidies that allow them to sell at lower prices.
- They can influence the market price through advertising.
- They collude with other firms to set prices.
In the short run, a firm in a perfectly competitive market will maximize profits or minimize losses by producing at the output level where:
In the short run, a firm in a perfectly competitive market will maximize profits or minimize losses by producing at the output level where:
- Marginal cost (MC) is greater than marginal revenue (MR).
- Marginal cost (MC) equals marginal revenue (MR). (correct)
- Average total cost (ATC) is minimized.
- Marginal cost (MC) is less than marginal revenue (MR).
What happens in a perfectly competitive market in the long run if firms are making economic profits?
What happens in a perfectly competitive market in the long run if firms are making economic profits?
What is the condition for long-run equilibrium in a perfectly competitive market?
What is the condition for long-run equilibrium in a perfectly competitive market?
If a corn farmer attempts to sell their corn at $7.00 per bushel when the average market price is $6.00, what is most likely to happen, assuming a perfectly competitive market?
If a corn farmer attempts to sell their corn at $7.00 per bushel when the average market price is $6.00, what is most likely to happen, assuming a perfectly competitive market?
Which of the following markets best resembles perfect competition?
Which of the following markets best resembles perfect competition?
In the short run, if a perfectly competitive firm's total revenue is less than its total variable costs, the firm should:
In the short run, if a perfectly competitive firm's total revenue is less than its total variable costs, the firm should:
What is the primary driver of market price in a perfectly competitive market?
What is the primary driver of market price in a perfectly competitive market?
How does the characteristic of 'perfect information' impact a perfectly competitive market?
How does the characteristic of 'perfect information' impact a perfectly competitive market?
Flashcards
Perfectly Competitive Market
Perfectly Competitive Market
A market where many firms sell identical products, and no single entity can influence the market price.
Price Taker
Price Taker
A firm that must accept the market price as given and cannot influence it.
Short Run Decisions
Short Run Decisions
Firms adjust variable inputs to maximize profits or minimize losses, while facing fixed costs.
Long Run Decisions
Long Run Decisions
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Profit Maximization
Profit Maximization
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Long-Run Equilibrium
Long-Run Equilibrium
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Agricultural Market Example
Agricultural Market Example
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Agricultural Markets
Agricultural Markets
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Roadside Produce Markets
Roadside Produce Markets
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Study Notes
- Perfectly competitive markets have many firms and consumers, so no single entity controls prices.
- Products from different firms are identical, serving as perfect substitutes.
- All buyers and sellers have complete access to information for rational decisions.
- Firms can freely enter or exit the market.
Price Taker Concept
- Firms in these markets are price takers, meaning they accept the market price.
- Raising prices results in no sales because consumers will buy from competitors.
Short Run vs. Long Run Decisions
- In the short run, firms adjust variable inputs to maximize profits or minimize losses, given fixed costs.
- Firms maximize profit by producing where marginal cost (MC) equals marginal revenue (MR).
- If profits aren't possible, firms minimize losses.
- In the long run, firms can adjust all inputs and enter or exit the market.
- Economic profits attract new firms, increasing supply and lowering prices.
- Losses cause firms to exit, reducing supply and stabilizing prices for remaining firms.
- Long-run equilibrium occurs when firms earn zero economic profit.
Market Dynamics
- Supply and demand determine market price.
- If corn farmers get $6.00 per bushel, selling higher results in no sales due to competition.
Examples of Perfect Competition
- Agricultural markets often see crops that are interchangeable.
- Farmers act as price takers
- Roadside produce markets often display similar competitive pricing.
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