Perfect Competition Flashcards
What is market structure?
It determines behavior, and this determines performance (price, profit, output)
What are the different types of markets?
Perfect competition, monopoly, monopolistic competition and oligopoly
What are the main characteristics of perfect competition?
Many buyers and sellers, products are exactly the same (homogeneous), perfect knowledge, freedom of entry into and exit of the market in long-run, firm is a price-taker and it is the highest level of competition
What are the main characteristics of a monopoly?
One firm produces a product, unique product, entry to market is very difficult and the demand curve = market demand structure (downward sloping)
What are the main characteristics of a monopolistic competition?
There are many firms, differentiated products, free entry to the market, demand curve is downward sloping
What are the main characteristics of an oligopoly?
There were few firms, can be homogeneous or differentiated product, entry to the market can be restricted and the demand curve is downward sloping
What is the market equilibrium price in a competitive market?
It is the price the firm has to take, as each unit is sold for this price, price = MR
When does maximum profit occur?
When MR = MC
When does a firm make abnormal profit?
When AR is below price in the short-run
What happens if P > AVC?
The firm stops producing the short-run
When can normal profits be made?
They can only be made in the long-run due to entry and exit of firms
