Chapter 9 - Competitive Markets Flashcards
What is market structure?
Features that affect behaviour and performance of firms in that market
What is market power?
When firms can determine its own price
A market is said to be _ when its firms have little or no market power
Competitive
The more market power the firms have, the (more/less) competitive the market is
Less
What occurs when each firm has zero market power?
A perfectly competitive market
PC when MP = 0
When degree of competition increases, market power (inc/dec)
Decreases
What is competitive behaviour?
The degree to which individual firms vie with one another
MasterCard and Visa engage in _ _ but their market is _ _
Competitive behaviour, not competitive
GM and Toyota engage in _ _ but their market is _ _
Competitive behaviour, not competitive
Two wheat farmers don’t engage in _ _ but they both exist is a _ _ _
Competitive behaviour, very competitive market
What are the 4 assumptions of perfect competition?
- All sell a homogenous (similar) product
- Customers know nature and price of product
- Each reaches min LRAC at an output that’s small relative to the industry’s total output
- Industry characterized by freedom of entry and exit
In a perfectly competitive market, the DC for each firm is _
Horizontal
In a perfectly competitive market, the DC for the industry is _ _
Downward sloping
What does a horizontal DC mean for each firm?
The price will always be the same no matter then change in Q
Give the equation for total revenue (TR)
TR = p x Q
Give the equation for avg revenue (AR)
AR = (p x Q)/Q = p AR = TR/Q = p
