Markets And Prices Flashcards
What determines the market structure
The number of firms in the market, the products sold and the barriers to entry
What are the four different types of markets
Perfect competition, monopolistic competition, oligopoly and monopoly
What are perfectly competitive markets
Markets with a large number of participants, both firms and consumers , no barriers to entry and identical products
What does it mean that firms are price takers in a perfectly competitive market
That they have no influence on the price, either they sell and produce according to market forces or are competed out
What is profit
The difference between total revenue and total costs
In a perfectly competitive firm does the marginal revenue equal price
Yes
When does a firm exit the market in the short run
When prices are lesser than variable costs
How do you calculate the industry supply curve
By aggregating the cost curves of individual firms
Why is the industry supply curve upward sloping
Because firms can produce more when prices are higher and Because firms with higher costs can enter here
Why does firms erne zero economic profits at equilibrium in a perfectly competitive market
Because there are no barriers to entry and products are identical so there is a race to the bottom when it comes to prices. The price will fall to where there is no incentive to enter the market at zero profits. Likewise if there was profit to be made those with lower costs would produce more. Economic profits take opportunity costs into account so at that point their opportunity cost is as large as any difference additional production would make
How does the supply curve look for constant cost industries
The long run supply curve is horizontal. Increasing and decreasing cost industries have supply curves that follow the cost too
How does a firm erne positive economic rent in a perfectly competitive industry
When its costs are lower than the competition.
What is the difference between economic profits and producer surplus
Surplus does not include fixed costs. A firm never operates with negative producer surplus because than a product sells fore less tan it costs to produce
What is the difference between economic profits and economic rent
Economic profits is includes opertunity costs
What is the difference between economic profit and rent
Economic profit is the difference between revenue and accounting plus opportunity cost while the rent is the money they erne from producing for less than the competition. Opportunity cost is not in the rent
