Dynamics Of Perfect Markets Flashcards
What is a market
An institution or mechanism that brings together the buyers and sellers of a good or a service
What is Marginal Cost and give the formula
The amount by which the total cost will increase when one extra unit of a product is produced
Change in Total Cost / Change in Output = MC
What is Marginal Revenue and give the formula
The extra amount of income earned when an additional unit of a product is sold
Change in Total Revenue / Change in Qauntity = MR
What are the two formulas for average cost
Fixed Cost + Variable Cost = AC
Total Cost / Total Output = AC
Also called unit cost
What is Average revenue and give the formula
The amount the enterprise earns for every unit sold
Total Revenue / Output = AR
What is another term for average revenue and why can we say this
Total Revenue = Price x Quantity
Average Revenue = Price x Quantity / Quantity
Therefore Average Revenue = Price
What is Average Variable Cost and what is its formula
Variable cost divided by number of units produced
Variable Costs / Total Output = AVC
What is Price
A value that will purchase a definite quantity, weight, or other measure of a good or service
What is Quantity
The extent, size, or sum of countable or measurable objects, expressed as a numerical value
Describe Perfect Competition
Market Structure with a large number of participants who are all price takers, there are no entry or exit barriers in the long run, all information is available to both buyers and sellers and a homogenous product is sold
What are three examples of perfect competition
Stock Exchange
Central Grain market
Foreign currency market
What do we mean by businesses being impersonal
Businesses strive towards maximum profit and only take its own cost structure into account when determining production levels
They are price takers
What is the first way to determine if the market is perfect when looking at a supply and demand graph
If the demand line of the individual business is horizontal, it is perfect
What does the horizontal demand curve of an individual business also represent
The marginal revenue curve
What is economic cost
Economic cost of production = Opportunity cost = Explicit cost + implicit cost