Pure Competition Quiz Flashcards
What type of product is in a purely competitive market?
Standardized (perfect subs)
In a purely competitive market, is there any ability to set price?
No, market determines price and the seller is the price taker
Is there any product differentiation in a purely competitive market?
No. Products are identical
What is the ease of entry in a purely competitive market?
Relatively easy to start a new business
Are there any non-price competition (advertisements, warranties) in a purely competitive market?
No
Is there allocative/ productive efficiency in a purely competitive market?
Yes
Are there any long run profits in a purely competitive market?
No
What are some examples of a purely competitive market?
- agriculture
- stock market
- currency exchanges
The demand curve of the individual firm is
Perfectly elastic
Why does P=MR?
Because each additional sale brings the price as revenue- never more, never less
What is normal profit?
The minimum income that the entrepreneur must receive to continue
What are the 3 characteristics of the MR=MC rule?
- Firm will choose to produce rather than to shut down
- Profit maximizing rule for all firms
- PC firms can sell as much or as little as they choose
Firms maximize their profits where?
Where MR=MC
How do you find the loss or profit?
Price- ATC • quantity
MC intersects AVC and ATC where?
At lowest points
MC comes from where?
TC not ATC
How long will the firm choose to produce at a loss?
As long as it covers its variable costs and at least some of its fixed costs
What does it mean when the ATC curve is above the AVC curve?
Producing at a loss
What happens if the price is below AVC?
Shut down
In the marginal cost and SR supply curve, what is the MR curve?
The demand curve
In the marginal cost and SR supply curve what is the MC curve above shutdown point?
The supply curve
If the MR=MC point is exactly at the shutdown point, what happens?
The company still produces
What are the determinants that cause the supply curve to shift?
- cost of resources
- # of firms
- advances in technology
- government regulation
- taxes
- price expectations
What is market price determined by?
Demand and supply
What are the three assumptions of profit maximization in the long run?
- only adjustment in this analysis is the entry and exit of new firms
- all firms have identical cost curves
- industry is constant (entry and exit will not affect resource prices)
Socially optimal production=?
Allocative efficiency
Allocative efficiency?
Using resources deemed by society as most optimal means of production
Productive efficiency?
Production of goods in least costly way
In the long run, after all changes in the market, what happens?
Long run equilibrium is established
In the long run?
A purely competitive firm wants only normal profit
In a purely competitive market, what is the number of firms?
Very large number of firms (many many)
In a monopolistic competitive market, how many firms are there?
Large number of firms (many)
What type of product is in a monopolistic competition?
Differentiated (similar)
What is the ability to set price in a monopolistic competitive market?
Some
Product differentiation in a monopolistic competitive market?
Varies depending on the industry
Ease of entry in a monopolistic competitive market?
Relatively easy to start a new business
Examples in monopolistic competitive market?
Fast food
Retail
Barriers to exit/entry in monopolistic competitive market?
None
Non price competition in monopolistic competitive market?
Heavily advertised
Allocative/productive efficiency in monopolistic competitive market?
No
Long run profits in monopolistic competitive market?
None
Number of firms in oligopoly?
A few (3-5)
Type of product in oligopoly?
Standardized or differentiated
Ability to set price in oligopoly?
Mutual interdependence
Product differentiation in oligopoly?
Varies. Some industries may be identical, others may be differentiated
Ease of entry in oligopoly?
Difficult. High start up costs
Examples of oligopoly?
Auto industry
Cell phones
Cereals
Barriers to exit/entry in oligopoly?
Extensive
Non-price competition in oligopoly?
Heavily advertised
Allocative/productive efficiency in oligopoly?
No
Long run profits in oligopoly?
Yes
Number of firms in pure monopoly?
Single producer
Type of product in pure monopoly?
Unique, no substitution
Ability to set price in pure monopoly?
Most. Seller is only source of product and can act like price maker
Product differentiation in pure monopoly?
None. Product is unique
Ease of entry in pure monopoly?
Very difficult. Significant barriers to entry
Examples of pure monopoly?
NFL
Gulf Power
Barriers to exit/entry in pure monopoly?
Extensive
Non price competition in pure monopoly?
Yes
Allocative/productive efficiency in pure monopoly?
No
Long run profits in pure monopoly?
Yes
