competitive firms and markets Flashcards
what is price taking
a firm can not affect price level as its output is to small
what are features of perfect competition markets
many buyers and sellers, identical products, full information, negligeble transaction costs, free entry and exit
what are some faults of the requirements for perfect competition
often high barriers to entry such as licences etc, imperfect information, zoning laws to limit no. of firms
what is residual demand
demand not met by the current number of firms in the market
what is the formula for elasticity of residual demand
Ei = nE - (n-1)N0
what is the output decision rule
mr = mc
when does a competitive firm shut down
when it can reduce its loss by doing so, R<VC
can firms enter the market in the SR
no
what are 2 shut down decision points
PQ<vc P<AC
what curves does specific tax affect
AC,MC,AVC
what does a specific tax lead to
inward shift of supply curve, higher prices and costs, lower profit
what does the SR market supply curve equate to
the horizontal sum of all individual firms supply curves
what happens to the supply curve if lots of firms enter the market
becomes more elastic
what do the supply curves of two curves look like if the firms have differing costs
the lower cost firms supply curve will start lower than the other firms as it can sell at a lower price
when is the mc curve = to the supply curve
above the minimum avc point
