Market Structure wiley Flashcards
What are the four market structures normally considered in economic analysis?
Perfect competition;
Perfect monopoly;
Monopolistic competition;
Oligopoly.
What is the shape of the demand curve for a firm in perfect competition?
The demand curve faced by a single firm in a perfectly competitive market is a straight horizontal line originating at the price set by the market (of all firms).
What is a “price taker” firm?
The assumption that a firm in a perfectly competitive market must accept (“take”) the price set by the market and can sell any quantity of its commodity at that price. Thus, the demand curve faced by a single firm in perfect competition is a straight horizontal line at the market price.
Describe the point of short-run profit maximization for a firm in perfect competition.
Short-run profit is maximized where marginal revenue is equal to rising marginal cost; total revenue will exceed total costs by the greatest amount at that point.
List the characteristics of perfect competition
A large number of independent buyers and sellers, each of which is too small to separately affect the price of a commodity;
All firms sell homogeneous products or services;
Firms can enter or leave the market easily;
Resources are completely mobile;
Buyers and sellers have perfect information;
Government does not set prices.
How are long-run profits determined for a firm in perfect competition?
There are no long-run profits possible in a perfectly competitive market. If profits are made in the short-run, more firms will enter the market and increase supply, thus decreasing market price until all firms just break even.
