Perfect competition and monopoly

Question 1

Equilibrium

Answer 1

A state of rest or balance, in which there is no reason for anything to change unless it is disturbed, in which case disequilibrium replaces equilibrium.

planned demand = planned supply

Question 2

Profit

Answer 2

The difference between total revenue and total cost.

Question 3

Normal profit

Answer 3

The amount required to keep a factor employed in its present activity in the long run.

Question 4

Sub-normal profit

Answer 4

Profit below normal which should lead to firms leaving the industry.

Question 5

Supernormal profit (abnormal profit)

Answer 5

A return above normal profit - a surplus payment.

Question 6

Optimum output

Answer 6

The (optimum) combination of fixed and variable factors that minimises ATC.

Where ATC is at its lowest point.

Therefore, it is also causing productive efficiency as firm is producing its products at lowest possible cost using existing technology.

Question 7

Static efficiency

Answer 7

Efficiency at a point in time - includes allocative and productive efficiency.

Which firms in perfect competition likely to be.

Question 8

Dynamic efficiency

Answer 8

Efficiency over time. Concerns production of new products, techniques and processes, undertaking investment in research and development which makes supernormal profits and increases economic growth.

Firms in perfect competition would not achieve however, monopoly would achieve it.

Question 9

Allocative efficiency

Answer 9

The optimum allocation of scarce resources that best accords with the consumers’s pattern of demand.

Question 10

Productive efficiency

Answer 10

When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process.

Question 11

Structural performance and conduct model

Answer 11

Individual performance depends ultimately on the industry structure where the variables in the model are structure, conduct and model.