Microeconomics pt. 7
The profit maximizing condition for a purely competitive firm is when...
MC=MR alternatively, firm will keep producing more as long as Price > average total costs
A firm in a purely competitive market structure calculates profit using the following equation:
Profit = total revenue - total cost
For a constant cost industry in a purely competitive market structure, whenever there is an increase in market demand and price, then the supply curve
Shifts to the right with new firms' entry and stops at the point where the new long-run equilibrium intersects at the same market price as before.
In the short run, a strawberry farm operating in a perfectly competitive market would produce strawberries at a profit if...
They sell each package of strawberries for $5, and the average variable cost is $4.75. (The farm would continue to produce in the short run as long as Price > average variable cost)
Under perfect competition, any profit-maximizing producer faces a market price equal to its
marginal costs (P=AR=MR=MC)
In the _________, the perfectly competitive firm will seek ____________ .
short run; the quantity of output where profits are highest
In a perfectly competitive market...
It will eventually reach long-run equilibrium.
Assume the purely competitive market is in long-run equilibrium. For some reason market demand increases. What would happen? Correct!
At first, all firms would achieve economic profit, but eventually economic profit would fall back to zero as new firms enter the market.
A strawberry farm operating in a perfectly competitive market is operating below the break-even point. What is the best thing to do in the short run?
Consider shutting down or stopping production
How would you explain allocative efficiency in a purely competitive market structure?
Firms produce that quantity where the price consumers pay equals the cost to society to produce it.
Which of the following characteristics does NOT describe a perfectly competitive market?
Firms set different prices for their product, either at or above the equilibrium price.
Why is the perfect competition often used as a benchmark?
It provides a useful comparison to markets that operate in more complex, real-world conditions.
In the ________, the perfectly competitive firm will react to losses by _________________ .
Long run; exit the market
Refer to the table below. In this instance, confirmation that this firm is operating in a perfectly competitive market can readily be ascertained by the fact that its
marginal revenue is constant.
Refer to the diagram above. In this instance, the marginal revenue curve
reflects all of the options given