Th3.4: Efficiency 2 Flashcards

1
Q

Why does AC = AR?

A

since they can only make normal profit in the long run

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2
Q

Why does MR = MC?

A

since they profit maximise

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3
Q

Because MR does not equal AR and AC cannot equal MR, the firm will not be…

A

the firm will not be allocatively or productively efficient

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4
Q

Why are they likely to be dynamically efficient?

A

since there are differentiated products and so know that innovative products will give them an edge over their competitors and enable them to make supernormal profits in the short run

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5
Q

However, since the firms are small they may struggle to…

A

may struggle to receive finance or have the retained profits necessary to invest

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6
Q

In monopolistic competition compared to perfect competition…

A

less is sold at a higher price and firms may not necessarily be producing at the lowest cost

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7
Q

However, the market will offer…

A

greater variety and may be able to enjoy some economies of scale

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