Theme 3 Micro Flashcards
Where is productive efficiency?
Lowest point on average cost curve
Where is allocative efficiency?
Demand = Supply (AR = MC)
Where is profit max located?
MC = MR
Where is Rev max located?
Where MR=0
Where is sales max located?
Where AC = AR
Firms in perfect competition can only make supernormal profits in the…
Long Run
Is a firm in perfect competition productively efficient?
Yes ( it is operating at the lowest point on the AC curve)
Is a firm in perfect competition allocatively efficient?
Yes as they are producing where demand equals supply, where AR=MC
What type of efficiency do firms in perfect competition not fill?
dynamic efficiency, as firms do not make enough profit for research and development
What is X efficiency on a diagram?
The firm operates on the average cost curve
Is a monopolistic market in allocative or productive efficiency in the long run?
No
What is the key principle of drawing a monopolistic long run market?
No supernormal profit is made, AC meets AR at profit max
In a monopolistic market supernormal profit is made in the short run but in the long run…
There is less demand for each individual firm as consumers can substitute.
