Section11 Flashcards
1
Q
What are the characteristics of a perfectly competitive market?
A
- Many buyers and sellers
- Firms are price-takers
- Homogeneous goods
- Free entry and exit
- No externalities
- Perfect and complete information
- Economic agents are rational
2
Q
What is the goal of a competitive firm?
A
- Maximise profits: Profits = Total Revenues - Total Costs
- Produce efficiently to minimise costs
- Maximise economic profit with a long-term vision
- Satisfy shareholder interests
3
Q
How do economists measure economic profit?
A
- Economic Profit = Total Revenues - Total Costs
- Total Costs include explicit costs and opportunity costs
4
Q
What is marginal revenue in a competitive firm?
A
- Marginal Revenue (MR): Change in total revenue from an additional unit sold
- For competitive firms, MR = Price
5
Q
What is the profit maximising condition for a competitive firm?
A
- Marginal Cost (MC) = Marginal Revenue (MR)
- In a competitive market, MR = Price
- Thus, MC = Price
6
Q
What are the conditions for a firm to shut down in the short run?
A
- Continue production if revenue minus variable cost covers fixed costs
- Shut down if Total Revenue < Variable Costs (P < AVC)
- Shutdown point: Price equals average variable cost (AVC)
7
Q
What happens in the long-run supply curve of a competitive market?
A
- Firms enter or exit the market until profit is driven to zero
- In the long run, Price = Minimum of Average Total Cost (ATC)
- The long-run market supply curve is horizontal at this price
8
Q
What is the behavioural theory of the firm?
A
- Firms have multiple goals
- Behaviour is satisficing rather than maximising
- Decisions made with bounded rationality
- Management aims to satisfy all members of the company
9
Q
What is a non-profit organisation?
A
- Primary goal: Collective, public, or social benefit
- No profit distribution: Profits are reinvested
- Examples: Schools, churches, consumer cooperatives
