Revenue Concepts in Perfect Competition

The maximum profit is indicated when the slope of a tangent drawn to the total cost curve equals the slope of the total revenue curve.

Profits shrink at outputs smaller or larger than OQ.

A monopoly exists when a specific person or enterprise is the only supplier of a particular good.

<p>Government licenses and patents are two barriers to entry.</p> Signup and view all the answers

<p>A monopolistic firm can set higher prices than in a competitive market, allowing it to earn higher profits.</p> Signup and view all the answers

<p>The product is unique, with no close substitutes available.</p> Signup and view all the answers

<p>Price discrimination occurs when a monopoly sells the same product to different buyers at different prices.</p> Signup and view all the answers

<p>The break-even point is where total costs equal total revenues, resulting in zero profits.</p> Signup and view all the answers

<p>It often leads to a price war, where rival firms retaliate with even higher price reductions.</p> Signup and view all the answers

<p>Firms are interdependent and fear that reducing prices will trigger price cuts from rivals, disrupting the market.</p> Signup and view all the answers

<p>A cartel is an agreement among firms to collude for higher profits, formed to regulate prices and control output.</p> Signup and view all the answers

<p>'Oligopoly' signifies a market structure where a few firms have a significant influence over the market.</p> Signup and view all the answers

<p>Price cartels fix minimum prices, while quota cartels restrict supply to raise market prices.</p> Signup and view all the answers

<p>The main objective is to stabilize prices and prevent competition from undercutting their profits.</p> Signup and view all the answers

<p>Buyers often purchase from a limited variety due to a lack of knowledge about all available products and their qualities.</p> Signup and view all the answers

<p>Interdependence means that firms must consider the potential reactions of competitors when making decisions.</p> Signup and view all the answers

<p>They assign specific customers to each member to ensure that revenue is fairly distributed and preserved.</p> Signup and view all the answers

<p>Entry barriers are established by cartels to protect their market from new competitors and maintain higher profits.</p> Signup and view all the answers

<p>Advertising serves as a powerful tool for firms trying to capture a larger market share, influencing competitive behavior.</p> Signup and view all the answers

<p>The demand curve is more elastic, meaning firms must reduce prices to sell more products.</p> Signup and view all the answers

<p>They must continuously react to each other's pricing decisions, leading to unpredictable market conditions.</p> Signup and view all the answers

<p>While there are generally no significant barriers to entry, some long-term challenges can discourage new firms from entering the industry.</p> Signup and view all the answers

<p>Total Revenue is calculated by multiplying the quantity of the commodity sold with its price: Total Revenue = Quantity × Price.</p> Signup and view all the answers

<p>Competition is vital as firms continuously monitor each other's actions and must react to maintain market position.</p> Signup and view all the answers

<p>Average Revenue represents revenue per unit sold, calculated as Average Revenue = Total Revenue/Quantity.</p> Signup and view all the answers

<p>Lack of uniformity indicates that firms vary in size, with some being significantly larger or smaller than others.</p> Signup and view all the answers

<p>Marginal Revenue is the additional revenue generated from the sale of one more unit of output, represented as MR_n = TR_n - TR_n-1.</p> Signup and view all the answers

<p>A perfectly competitive market is characterized by a large number of buyers and sellers, identical products, and no individual control over market supply or price.</p> Signup and view all the answers

<p>The number of buyers and sellers is large in perfect competition to ensure that no single buyer or seller can control market price or supply significantly.</p> Signup and view all the answers

<p>Products in perfect competition are considered homogeneous because all sellers provide identical products, making them perfect substitutes for one another.</p> Signup and view all the answers

<p>Perfect competition serves as a benchmark for comparing other market structures due to its ideal characteristics, which rarely exist in reality.</p> Signup and view all the answers

<p>It implies that no single firm can influence the overall market supply or price due to the large number of competitors and identical products.</p> Signup and view all the answers

<p>A competitive firm must accept the prevailing market price and cannot influence it through its own actions.</p> Signup and view all the answers

<p>In a perfectly competitive market, all sellers offer identical products, so buyers see no difference between them.</p> Signup and view all the answers

<p>Perfect knowledge ensures that all participants are aware of the market price, leading to a single price prevailing in the market.</p> Signup and view all the answers

<p>Perfect mobility allows factors of production, like labor and capital, to move freely in and out of the industry as needed.</p> Signup and view all the answers

<p>Free entry and exit enable new firms to join the industry or existing firms to leave based on market conditions, ensuring a competitive environment.</p> Signup and view all the answers

<p>Absence of transport costs ensures that prices remain consistent across different market segments, enabling effective competition.</p> Signup and view all the answers

<p>A firm maximizes profit where the difference between total revenue (TR) and total cost (TC) is greatest.</p> Signup and view all the answers

<p>The total revenue curve is a straight upward-sloping line indicating that revenue increases linearly with output at a constant price.</p> Signup and view all the answers

<p>In monopolistic competition, lower prices lead to higher quantities sold, while higher prices result in lower quantities sold due to the elastic nature of the market.</p> Signup and view all the answers

<p>Product differentiation refers to the variety of products that are similar but distinguishable from each other, allowing firms to compete on features beyond price.</p> Signup and view all the answers

<p>Advertising and selling costs are crucial, as firms use them to promote their products, affecting both demand and overall profitability.</p> Signup and view all the answers

<p>Free entry and exit allow new firms to enter when existing firms earn supernormal profits, which eventually drives profits down to normal levels for all firms.</p> Signup and view all the answers

<p>A key characteristic is the presence of a large number of firms, which allows individual firms to influence their pricing and output decisions without impacting the market significantly.</p> Signup and view all the answers

<p>The lack of perfect knowledge means buyers and sellers are unaware of all available products and prices, leading to less informed decision-making.</p> Signup and view all the answers

<p>In the long term, firms in monopolistic competition typically earn normal profits due to the entry of new firms that erode supernormal profits.</p> Signup and view all the answers

<p>In monopolistic competition, firms face a downward-sloping demand curve and can set prices, meaning demand is relatively inelastic compared to perfect competition where firms are price takers.</p> Signup and view all the answers