Firm behaviour

Question 1

Conditions for a perfectly competitive market

Answer 1

Product sold by multiple firms is essentially the same
Large number of firms and consumers so no one big hegemon
Few or no barriers to entry
Price takers
Perfect information

Question 2

Short run

Answer 2

the amount of time where fixed costs are not changeable/K (capital) is fixed -> production will reflect how quantity produced changes as labor input changes

Question 3

Short run returns to labor

Answer 3

Increasing returns to labor: marginal profit increases and marginal cost decreases as more labor is added

Decreasing returns to labor: marginal profit decreases and marginal costs increases as more labor is added

Question 4

Illustration of SR Cost Curve

Answer 4

Question 5

Basics of SR Curve

Answer 5

MC will intersect ATC and AVC at lowest points = breakeven point
Price set below ATC = loss
Price set below minimum of AVC = shutdown

MC aka price

Question 6

Long run

Answer 6

all inputs are variable, cost of production is based upon price of inputs, firm try to minimise total costs

Question 7

Economies of scale / increasing returns to scale

Answer 7

Long-run ATC decreases as output increases

Question 8

Diseconomies of scale / decreasing returns to scale

Answer 8

Long-run ATC increases as output increases

Question 9

Constant returns to scale

Answer 9

Long-run ATC stays the same as output increases