Ch.8 Perfect Competition Flashcards
In a market that many firms selling
1. Identical Products
2. Differentiated Products
& their ability of $ Ctrl
-
Perfect Competition
No $ Ctrl
e.g. coffee, corn -
Monopolistic Competition
Low $ Ctrl
e.g. hair salon
In a market that has a few sellers selling
1. Undifferentiated Prod.
2. Differentiated Prod.
& their ability of $ Ctrl
-
Undifferentiated Oligopoly
Moderate $ Ctrl
e.g. chemical, lumber -
Differentiated Oligopoly
Substantial $ Ctrl
e.g. soft drink, car, sport goods, appliances, electronics equip
A Market that
- Many small buyers & sellers
- Buyers & sellers are $ takers
- No Preference shown
- Easy entry/exit
- Info available to all
- Rare in reality
Perfect Competition
In Perfect Competition,
a firm has
No Control
over
Market (Supp & DD)
Price $
In Perfect Competition, a single firm has little effect on supply, DD curve facing a single firm becomes
Constant (—)
Average Revenue
AR =
In Perfect Competition
. Total Rev. Q × P
AR = ————- = ——–
. Q Q
⇒ MR = AR = Price
Marginal Revenue
MR =
In Perfect Competition
. △Total Rev. △Q·P
MR = ————- = ——–
. △Q △Q
⇒ MR = Price = AR
Curves of Avg Rev. & Marginal Rev. in graph
In Perfect Competition
——
constant = P
Total Profit (Loss)
Tπ
Tπ = TR - TC
=Economic Profit
The Level of Output that
Total Revenue just covers
Total Costs (incl. Normal Profit)
and makes 0 economic profit
Break-Even Output
TR = TC
always 2 B-E Outputs
Tπ = Economic Profit = 0
Find Output Level that
Max. Tπ Total Profit
MR = MC
Qty produced ↑↓ when
MR > MC
&
MR < MC
MR > MC ⇒ produce ↑
MR < MC ⇒ produce ↓
Decision Making with curves of
1. AVC
2. MC
3. AC
- AVC for shut down/produce
- MC for best output
MC cuts MR - AC for Profit/Loss
A firm should shut down
if Loss from Prod. > ____
&
Sales Price < ____
Loss from Prod. >
Total Fixed Costs
&
Sales Price <
Avg. Variable Costs
Shutdown Price =
Price only covers
Variable Costs
