Pure Competition Study Set - Ch 10-11

Oligopoly

A market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms), and in which there is typically nonprice competition.

pure competition

A market structure in which a very large number of firms sells a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no nonprice competition; a market characterized by a very large number of buyers and sellers.

monopolistic competition

A market structure in which many firms sell a differentiated product, into which entry is relatively easy, in which the firm has some control over its product price, and in which there is considerable nonprice competition.

pure monopoly

A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.

marginal revenue is greater than its marginal cost.

A purely competitive firm should increase the quantity of output as long as which one is true? 1. marginal revenue is greater than its marginal cost. or 2.marginal cost is greater than marginal revenue

total variable costs.

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:___________________________ (total variable costs, total fixed costs, both)

total variable costs.

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:___________________________ (total variable costs, total fixed costs, both?)

price taker

A seller (or buyer) that is unable to affect the price at which a product or resource sells by changing the amount it sells (or buys).

constant-cost industry

An industry in which expansion by the entry of new firms has no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.

decreasing-cost industry

An industry in which expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.

increasing-cost industry

An industry in which expansion through the entry of new firms raises the prices firms in the industry must pay for resources and therefore increases their production costs.

break-even point

An output at which a firm makes a normal profit (total revenue = total cost) but not an economic profit. Where the price intersects the ATC curve

It stays the same because it is a price taker.

Does the price of the product change in pure competition or does it stay the same? Why?

Short run: Economic profit or loss is possible; Long Run: Normal Profit

For pure competition, what is the profit potential in the short run and long run?

100's to 1,000's

How many sellers are there in pure competition?

No.

In pure competition, does the buyer or seller have any control over the price?

In pure competition mr=price because all units are the same price for a price taker so the marginal (extra) revenue from additional sales would be the same as the price

In pure competition, is marginal revenue equal to price, is it lower than price or is it higher than the price? Why?

No. No costs would be covered.

In pure competition, would a firm product at point A, If so, What would be covered?

Yes, but this is the shutdown point and only produce in short run. Only variable costs are covered.

In pure competition, would a firm product at point B? If so, what would be covered?

Yes. All costs are covered. This is breakeven point. All fixed and variable costs are covered including payment to entrepreneur.

In pure competition, would a firm product at point D? If so, what would be covered?

Yes at point c in short run. All variable costs are covered and some fixed costs are covered.

In pure competition, would a firm product at point c? If so, what would be covered?

Pure Competition firms achieve both allocative AND productive efficiency

In the long run, competitive markets achieve which of these? 1. allocative efficiency only; 2. productive efficiency only; 3. both or 4. neither

P= minimum ATC

Productive efficiency is achieved when the production of a good occurs where _________________________: (P= minimum ATC or P=MC)

P= minimum ATC

Productive efficiency is achieved when the production of a good occurs where _________________________: (P= minimum ATC or P=MC?)

marginal revenue

The change in total revenue that results from the sale of 1 additional unit of a firm's product; equal to the change in total revenue divided by the change in the quantity of the product sold.

Whole industry is downsloping; Individual firm is perfectly elastic.

The demand curve in a purely competitive industry is _____, while the demand curve to a single firm in that industry is _____.

MR = MC rule

The principle that a firm will maximize its profit (or minimize its losses) by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost. Applies to all 4 market models

productive efficiency

The production of a good in the least costly way; Where P = Minimum ATC.

total revenue

The total number of dollars received by a firm (or firms) from the sale of a product; Price x Quantity

average revenue

Total revenue from the sale of a product divided by the quantity of the product sold (demanded); equal to the price at which the product is sold when all units of the product are sold at the same price.

standardized product, no barriers to entry , a larger number of sellers

What are the characteristic of pure competition?

Normal profit because of easy entry to the market, other participants will enter and take a portion of the profits.

What is the long run profit position of purely competitive firm and why?

standardized (or homogenous ) product. Ex. corn, lettuce, catfish, strawberries, produce

What type of product is sold in pure competition?

All except pure competition

Which firms have differentiated products? pure competition? oligopoly? monopolistic competition? monopoly?

pure competition and monopolistic competition

Which of the four market models have easy entry/exit to the firms?

Due to easy entry and exit to the firm

Why is the purely competitive firm only able to maintain a normal profit in the long run?

In pure competition, would a firm product at point E? If so, what would be covered?

Yes. All costs are covered. This is breakeven point. All fixed and variable costs are covered including payment to entrepreneur.

Price Taker

Is Pure competition a Price-Maker or Price Taker?