C8: Competitive Markets

Question 1

Competitive Markets

Answer 1

Condiciones Perfect Comp.
- Many small buyers + sellers
- Homogenous good
- Perfect info
- No barriers
- No transaction costs

Question 2

Demand curve for 1 individual firm

Answer 2

Perfectly elastic

Question 3

Economic profit

Answer 3

Takes into account implicit costs
Ec P < Business P

Question 4

Returns to scale

Answer 4

Graphs
+ sum of powers =1 >1 <1

Question 5

LR returns to scale

Answer 5

LR cheaper to produce than SR

Question 6

Profit max SR

Answer 6

2 decisions:
- Output decision (what q to max prof)
- Shutdown decision (wether more profitable to shutdown temporarily or produce at q)

Question 7

Profit max SR: Output decision

Answer 7

3 rules:
- Profit max at q*
- Marg. profits = 0 at q*
- mr=mc at q*

Question 8

Profit max SR: Shutdown decision

Answer 8

2 rules to shutdown:
- Reduce losses
- Revenue at q* less than FC

Question 9

Profit max SR: Firm will produce if

Answer 9

p>=AVC(q*)

Question 10

Profit max SR: graph

Answer 10

graph

Question 11

SR eq: Supply curve for whole market

Answer 11

• Horizontal sum of all individual supply curves
  -(if firms identical cost) the more firms the flatter (more elastic)
• If dif costs: Market S curve will have kinks and segments

Question 12

LR equilibrium: Exit condition

Answer 12

P < min AC (LRAC)

Question 13

LR supply curve of individual firm

Answer 13

Portion of LRMC above LRAC

Question 14

LR market supply assumptions

Answer 14

1. All existing + potential entrants have the same costs curves
2. Price of inputs constant as new firms enter market

Question 15

Firms decide to enter

Answer 15

NOTAS