Chapter 9 Midterm 2 Flashcards
What is Market power?
a firm that can influence the price of their product has MARKET POWER
WHAT IS A COMPETATIVE MARKET?
How does market power affect competition
MORE MARKET POWER IN FIRMS = LESS COMPETATIVE MARKET
LESS MARKET POWER IN FIRMS = MORE COMPETATIVE MARKET
HOW DOES A PERFECTLY COMPETATIVE MARKET AFFECT FIRM’S PRICING?
PRICES MUST REFLECT SUPPLY AND DEMAND CURVES FOR THE PRODUCT WITH LITTLE ROOM FOR VARIANCE.
WHAT IS AN EXAMPLE OF TWO PERFECTLY COMPETATIVE behaviour
MASTERCARD AND AMERICAN EXPRESS;
they can adjust their fees accordingly and still attract customers
TOTAL REVENURE FORMULA?
TR = p x Q
Total Revenue = price$ x # of units sold
AVERAGE REVENURE FORMULA ?
AR = TR/Q = (pxQ)/Q = p
OR JUST THE FUCKING PRICE THAT THE PRODUCT IS SOLD
MARGINAL REVENUE FORMULA:
MR = ▲TR/▲Q
WHAT IS A “PRICE TAKER?”
meaning that the firm can alter its output and sales without affecting the market price of its product
What does a FIRM’s demand curve look like in a PERFECTLY COMPETETIVE MARKET?
Why?
Is the INdustry curve the same?
Its horizontal
because variations in the firm’s outputs have no significant effect on market price.
No, the industry’s curve is negatively slopped as usual
For a competitive price-taking firm, the market price is the______________
firm’s marginal (and average) revenue.
Firms marginal/ average costs.
Firms choice of salad dressing.
firm’s marginal (and average) revenue.
Firms (profit maximizing) will only produce at a level of output in which … (2)
Price is at least as great as AVC and marginal cost = Marginal revenue
in perfect competition, firms will choose its outputs so that MARginal Costs = ?
why?
market price
Because firms are price takers so marginal revenue is = price
(π = TR - TC) solves what?
economic profits
What is necessary for a firm to decide to produce/ output (not shut down)
the ability to find and create some level of output for which revenue IS GREATER than variable costs
sometimes companies are not profitable at all given circumstances at which point they should _____ ?
produce at ZERO output to maximize profits / minimize losses
Rule 1: A firm should not produce at all if, for all levels of output, total revenue (TR) is less than total variable cost (TVC). Equivalently, the firm should not produce at all if, for all levels of output, the market price (p) is less than average variable cost (AVC).
YEAH
what is shut down price =
firms average variable costs (given revs is lower)
IN A PERFECTLY FUCKING COMPETATIVE MARKET, IF it is worht while for firms to produce, what level should they produce at?
at a level of output where marginal costs of production = market price of the product ( as long as price exceed Avc)
IF it is worht while for firms to produce, what level should they produce at?
at a level of output where marginal revenue = marginal costs
HOW DOES A PERFECTLY COMPETATIVE FIRM ADJUST ITS LEVELS OF OUTPUT?
in Response to changes in market determined prices
wher is the supply curve located for a competative FIRM?
where os the INDUSTRY supply curve located in a perfectly competative market?
portion of its MC curve above the avc curve
horizontal sum of the marginal cost curves (above AVC)
(f1 + f2 + …)
What is the short run equilibrium in a competative market?
Qd = Qs AND each firm is maximizing profits at given market price (MC = Market price)
