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40 Cards in this Set
- Front
- Back
Large # of buyers and sellers; all about equal size
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Characteristics of Perfect Competition
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Each firm produces a homogeneous product
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Characteristics of Perfect Competition
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No barriers to entry
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Characteristics of Perfect Competition
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In the long run Econ(profit) must = 0
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Characteristics of Perfect Competition
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Typical firms demand curve is perfectly elastic
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Characteristics of Perfect Competition
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For perfectly competitive INDUSTRY; it faces a downward sloping demand curve
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Characteristics of Perfect Competition
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Price takers @ the market price determined in the industry graph
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Characteristics of Perfect Competition
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Each firm has perfect information
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Characteristics of Perfect Competition
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Econ(profit) = TR-TC
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includes both implicit and explicit costs
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When Econ(profit) = 0
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Acct(prof) > 0
Normal(prof) > 0 |
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MR = change TR / change Output
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all
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TR = Price X Quantity
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All
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TC = ATC X Quantity
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all
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TR = TC
TR > TC TC > TR |
Econ(profit) = 0
Econ(profit) >0 Econ(profit) <0 |
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P = ATC
P > ATC P < ATC |
Econ(prof) = 0
Econ(prof) > 0 Econ(prof) < 0 |
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Econ(prof) = [P - ATC] X Quantity
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[P - ATC] is the average profit
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Occurs where
MR = MC |
Profit Maximizing Output Rule
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MR = MC
MR > MC MR < MC |
Q(PROF)MAX
INCREASE OUTPUT IN ORDER TO INCREASE ECONprof DECREASE OUTPUT IN ORDER TO INCREASE ECONprof (NEVER WANT) |
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1) must be equalibrium in the industry (Qd = Qs)
2) Each firms output must be productively efficient (Qty that minimizes ATC) 3) Each firms output must be ALLOCATIVELY EFFICIENT (pdc Qty where P = MC) |
Economic Efficiency
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Qty that minimizes ATC
MC & ATC Cross |
Productively Efficient
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Produce Qty where P = MC
Where Demand and MC cross |
Allocatively Efficient
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the ability of a firm to price its output above its marginal costs
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Monopoly Power
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Shutdown Rule:
P >(equal) AVC |
stay open in S-R and produce Q(prof)max
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Shutdown Rule:
P < AVC |
shutdown in S-R and ECON losses = TFC
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Surplus transferred from one party to another but not lost to society as a whole
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Wealth Transfer
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One Seller (it is the industry)
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Characteristics of Monopoly
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Unique product (no substitutes)
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Characteristics of Monopoly
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Barriers to entry
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Characteristics of Monopoly
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Firm is a "Price Searcher or Setter"
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Characteristics of Monopoly
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Firm's demand is negatively sloping
Possible to increase price without sales falling to zero Firms price > MC |
Monopoly Power
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Must have some monopoly power
Must be able to to identify differences in willingness to pay among customers Must be able to separate your markets |
Successful Price Discrimination
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Many small independent firms
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Monopolistic Competition
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Differentiated Product
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Monopolistic Competition
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Price Searcher not price taker
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Monopolistic Competition
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No barriers to entry
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Monopolistic Competition
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Few large firms dominate the industry
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Oligopoly
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Mutual interdependence among firms
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Oligopoly
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Price-Searchers
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Oligopoly
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Product homogeneous or differentiated
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Oligopoly
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Moderate to high barriers to entry
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Oligopoly
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