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.