Econ
competitive market examples
-market for coffee beans -market for IBM corporate bonds
characteristics of a perfectly competitive market
-no market power -one of the many small competitors -price taker -produces where P=MC -cannot earn long-run economic profit
characteristics of a monopoly
-significant market power -price maker not taker -no competitors - produces at the point where Price>Marginal Cost -can earn long-run economic profit
In a perfectly competitive market, a firm will have what qualities?
-will be a price taker (has no control over the price of the market) -they have a horizontal demand curve -in the long-run they will earn zero profit
A firm should shut down in the long run when price is lower than the...
AVC
How do you find accounting profit?
Accounting profit= Total Revenue-Explicit Costs
How do you find economic profit?
Economic profit= Total Revenue-Explicit Costs-Implicit Costs
In a competitive market, firms reach maximum profit when...
MR=MC marginal revenue = marginal cost
Short-Run in a competitive market scenarios
P>AVC stays open, makes a profit AVC<P<ATC stays open, but loses a little money P<AVC complete shutdown
If MR=MC means maximum profit then what should the firm do if MC>MR?
The firm should produce less
a monopolist charges a price that is on the _____ portion of the demand curve
elastic (because marginal revenue is still positive at this portion of the demand curve)
For a perfectly competitive firm, marginal revenue is
equal to price
economies of scale
factors that cause a producer's average cost per unit to fall as output rises ^ this can result in a natural monopoly
In a competitive market, if firms experience a loss over the long-run, what will happen to firms, market price, and market supply?
firms will exit market price will rise market supply will decrease
Monopolies produce ________ than firms in a perfectly competitive market
less
In a perfectly competitive market, the price of the product is set by...
market supply and demand
who can earn profit in the long-run?
monopolies but not perfectly competitive markets
Monopolies charge ____ and produce _____ than competitive markets
more; less
The firm's long-run supply curve begins where
price is above Average Total Cost
The firm's short-run supply curve begins where
price is above Average Variable Cost
Cow Chip Cookies, a giant cookie company, has been fairly successful in its market. Lydia sees an opportunity for profit and enters the market. After producing her profit-maximizing level of output, she finds that her average total cost per unit is $3, her average variable cost per unit is $2, and the market price is $2.50. In the short run, Lydia should
stay in business because her profit is covering her AVC (even though she is suffering a loss)
natural monopoly and government intervention....
the government won't break this monopoly up because if they did and two or more firms were in this business then the firms would have to produce at much higher costs. this results in a higher consumer cost.