Market Structures - FIRM

Question 1

Firm - two types and definitions

Answer 1

Allocative efficiency occurs when the extra benefit to society equals the extra rosts that is, P - mc → Productive efficiency occurs when the firms are producing at the mininum of the average cost curve

Question 2

Firm in the short run

Answer 2

Abnormal profits or losses can be made by firms.

Question 3

Firm in the long run

Answer 3

Only normal profits can be made due to entry and exit of firms. In the long run allocative and productive efficiency is achieved.

Question 4

Allocative efficiency formula

Answer 4

Price = marginal cost

Question 5

Productive efficiency formula

Answer 5

Minimum average cost

Question 6

Economic surplus meaning

Answer 6

measures net benefit to the consumers and producers.

Question 7

Consumer surplus occurs when

Answer 7

occurs when the price for a product or service is lower than the highest price a consumer would willingly pay

Question 8

Producer surplus occurs when

Answer 8

occurs when goods are sold at a higher price than the lowest price the producer was willing to sell for.

Question 9

Surplus is maximised when

Answer 9

Surplus is maximised under perfect competition, it is key to measuring welfare, it is also important for understanding how interventions into the market such as price ceilings /flows and takes influence the weifare of consumers and producers.