theory of firms

Question 1

normal profit

Answer 1

profit needed to keep FOP in current use, in the long run

Question 2

supernormal profit

Answer 2

excess amount of profit

Question 3

assumptions of perfect comp

Answer 3

large number of firms
homogeneous products
freedom of entry/exit
price takers, no control of p
small supply per firm
perfect knowledge

Question 4

short run loss of PC

Answer 4

so many firms in market, supply is high so price is low, leading to making a loss

Question 5

long run of PC

Answer 5

firms leave the market, supply goes down and thus price goes up, return to normal profit

Question 6

short run SNP of PC

Answer 6

firms leave supply down, price up, Super normal profit

Question 7

assumptions of monopoly

Answer 7

1 firm
high barriers
price maker
imperfect knowledge

Question 8

disadvantage of monopoly

Answer 8

allocative inefficiency
productive inefficiency
x-inefficiency
over priced
low output
low quality
SNP

Question 9

advantages of monopoly

Answer 9

EOS
research and development
been efficient in the past
reinvest SNP

Question 10

price descrimination

Answer 10

the practice of charging different prices for same good/service

Question 11

first degree PD

Answer 11

diff price for every unit consumed

Question 12

second degree PD

Answer 12

diff price for diff quantities

Question 13

third degree PD

Answer 13

diff price for diff consumer groups

Question 14

conditions for Price descrimination

Answer 14

different markets
different elasticities
markets kept separate
no seepage between markets

Question 15

assumptions of Monopolistic Comp

Answer 15

lots of firms
some control over price(differentiating products)
easy to enter/exit
imperfect knowledge
profit maximisers

Question 16

short run SNP of MC

Answer 16

compete on non price differences, raise price

Question 17

short run loss min of MC

Answer 17

lots of firms, price down

Question 18

long run E of MC

Answer 18

new firms enter, return to normal profit

Question 19

oligopoly features

Answer 19

stable prices
collusion
high barriers
non-price diffs
brand loyalty source of comp

Question 20

kinked demand

Answer 20

if a firm increases prove above the kink, other forms will stay at the lower price and make more profit.
if a firm lowers price below the kink, all firms follow and all lose profit

Question 21

contestable market features

Answer 21

behaviour influenced by threat of new entrants
no barriers
little to no sink costs
price wars
artificial barriers to emtry