Firm and Market Structure

Question 1

firm operating in Price taker will produce the same quantity until…

Answer 1

until MR = MC
Mr = Marginal Revenue
mc = Marginal cost

Increase profit, no increase in Revenue,

Long run - ZERO Econ. profit

Question 2

1. Monopolistic
   (Competitive price searchers)
2. Monopoly
3. Perfect competition
   (Price takers)
   (D horizontal Graph)

4.Oligopolistic

Answer 2

1. MONOPOLISTC
   Less Elastic demand
   (Increase prices and obtain profits)
   Downward slope curve demand

Advertising experience -
.Brand Names can provide informations (i.e Honda)
.Costumers benefit from that
. Advertising costs decrease with increasing in outputs
.MAY deacrease ATC …

Differentiate products - Product innovation is critical to pursuit Econ. profit -

Low Barries to entry, Low barries to exit

Some pricing power

P > Marginal cost (lembra da rabeta da linha do MC no gráfico, preço é maior).

2. Monopoly
- One single firm

• High pricing power
• High barrier to entry
• Advertising to compete with substitutes
• Example of natural monopoly: utilities. (Lower cost of production)

3. PERFECT COMP.

. Perfect Elastic demand (horizontal D)
P = MC

. Draw in your mind a D horizontal chart with MC crossing the D. Which D = MR

This point is the maximum profit

. Low barriers to entry, thus, ZERO economic profit in the long run.

“Normal return, positive accounting profit”

(P = ATC)

When prices goes down, the firm will not increase Total Revenue

. Technological improvements =
- Costs decrease
- Firms supply (cost ) shift right
- Market Supply shift right

4. Oligopolistic:
.High degree of interdependence (Change in one highly affects the other)
.low number of sellers
.High Barries to entry

Question 3

Economic Losses occurs when
(Perfect competition)

Answer 3

P < ATC

Question 4

Under Perfect competition,
demand curve is:
Sellers dont:
Products are:

Answer 4

1.Horizontal.

Draw the D curve, and cost curve. (Profit maximizing output is the interception point)

2. Don’t make econ. profits
   (Same price, P=MC)
3. Indistinguishable (Não podem ser diferenciados)

Question 5

Price discrimination is when:

What are the 2 conditions for it to works?

Answer 5

The business take one group of clients to rise prices (Those clients have inelastic demand).

(i.e business flights and travel. Bussiness are willing to pay more)

1. Two groups with different demand elasticities
2. Prevent to resell
3. Faces a downward slope demand

Question 6

Allocative efficiency is:

Answer 6

consumer + producert plus is maximized

PC -> ok

MC-> no. The firms will produce less with a higher price