1. Market Structures - PC

Question 1

What market concentration is a PC market?

Answer 1

0%

Question 2

What are the conditions for a PC market?

Answer 2

1. Many buyers and sellers2. Homogenous goods/services3. Perfect Information4. No barriers to entry/exit5. Firms profit max. & consumers utility max.6. Firms are price takers

Question 3

What does it mean to say firms are price takers and why is this the case?

Answer 3

Being a price taker means the firms have to accept the market price for there good they cannot influence it. They are price takers bc if they try to raise the price ppl will switch to other homogenous goods - lose demand & if they try to lower prices other firms will follow them so they’ll sell the same Q at a lower price

Question 4

What profits will be made long & short run in a PC market?

Answer 4

In the short-run SN profits or losses can be made but in the long-run firms always revert back to the normal profit equilibrium

Question 5

Why do firms make only normal profits in the long-run in a PC market?

Answer 5

Bc; if SN profits in short-run - new firms enter - profits competed awayif losses in short-run - firms leave the market - supply shifts left - normal profits resumed

Question 6

Is a PC market; alloc., prod., & dyn., efficient in the l & s-run?

Answer 6

Allocativley Efficient (where supply=demand) - yes in both l & s-runProductively Efficient (at lowest point on AC curve) - yes in l-run, no in s-runDynamically Efficient - debatable - more SN profits in s-run to reinvest so maybe more so then