Perfect Competition

Question 1

Intro

Answer 1

1) identical products
2) no restrictions entry
3) established firms no advantage
4) sellers buyers (many) well informed on price

Question 2

Perfect comp are …… …..
define total revenue
Define marginal revenue
Demand is

Answer 2

• Price takers
• P*Q
• Change in R with one unit increase
• horizontal perfectly elastic

Question 3

Firms decisions

Answer 3

1) how to produce at min cost
2) quantity to produce
3) enter / exit

Question 4

Output decision

Answer 4

• MR>MC econ,inc as output,Dec

- MR

Question 5

Temp shutdown decision

Answer 5

• when MC=MR, P

Question 6

Market supply short run

Answer 6

• P<17 shut down
• P= 17 indef shut down/produce 7 a day
• shift left, P,Dec max profit by Q,Dec
• shift right, P,inc max profit by Q,inc

Question 7

Short run

Answer 7

• MC=MR
• Go to ATC Big smaller same
  1) break even same
  2) econ- profit smaller
  3) econ-loss larger

Question 8

Long run

Answer 8

1) Entry
- number firms increase
- supply increase right
- market price decrease
- eliminates profit 0
—-
Entry stop

2) Exit
- Number firms decrease
- supply decrease left
- market price increase
- econ loss eliminate 0
—–
exit stops

Question 9

In long run get to ….. when … and … stops but …… cause cycle again

Answer 9

Equilibrium
Entry
Exit
Events