Market structures- Topic 4

Question 1

Market stucture with many buyers and sellers that can achieve allocative and productive efficiency in the long run.

Answer 1

Perfect competition

Question 2

Perfect competition

Answer 2

Market stucture with many buyers and sellers that can achieve allocative and productive efficiency in the long run.

Question 3

Price taker

Answer 3

An invidiual or firm must accept the ruling market price as it lacks the power to influence the market.

Question 4

Characteristics of perfect competition

Answer 4

Many buyers and sellers, no barriers to entry, no barriers to exit, price takers, homogenous products, perfect knowledge in the market.

Question 5

What shape is the average cost curve?

Answer 5

U-shaped

Question 6

Where does the Marginal Cost curve dissect the Average Total Cost curve?

Answer 6

At the lowest point

Question 7

What is the level of profit maximisation output in perfect competition?

Answer 7

Where MC=MR (so where those two curves meet).

Question 8

When do firms in perfect competition make supernormal profits?

Answer 8

In the short run

Question 9

In perfect competition, in what position is the AR or Demand curve?

Answer 9

It is horizontal and is perfectly elastic.

Question 10

What type of efficiency is P=MC?

Answer 10

Allocative efficiency

Question 11

In the long run, what has happened to supernormal profits in a perfectly competitive market?

Answer 11

They have been removed because more firms have joined the market and therefore the market price has fallen so all firms operate where MC=ATC=MR.