ECON 208 Lecture Notes - Average Variable Cost, Competitive Equilibrium, Economic Equilibrium

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lilacrabbit206

13 Jul 2012

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ECON 208 Full Course Notes

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The competitiveness of the market- the influence that individual firms have on market prices. The less power an individual firm has to influence the market price, the more competitive is that market structure. Competitive behaviour refers to the degree to which individual firms actively bie with one another for business. Firms in a perfectly competitive market will see a completely flat demand curve (horizontal), even though the industry demand curve is downward sloping- because they are price taking and have no effect. This does not mean the firm could actually sell an infinite amount at the market price. Normal variations in the firms level of output have a negligible effect on total industry output. For a perfectly competitive firm, ar = mr. A firm should produce only if at some level of output, price exceeds avc (fixed costs have nothing to do with the decision because you have them no matter what.

Related Questions

1. A perfectly elastic demand function

Select one:

a. is characteristic of an individual firm operating in a perfectly competitive market.

b. shows that a consumer is willing to pay any amount for the product.

c. shows that the individual firm can increase sales by lowering the price of output.

d. has a marginal revenue that is always decreasing.

2. Your local farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

Select one:

a. a price maker and can therefore charge different customers different prices.

b. a price taker and cannot affect the market price of wheat.

c. always able to price produce above the competition and earn a larger profit.

d. never able to determine any prices he charges for anything, such as soybeans

3. All of the following are true regarding perfectly competitive price determination EXCEPT

Select one:

a. the individual firm takes the market price as given.

b. the individual firm is known as a market price maker.

c. the individual firm's marginal revenue curve is horizontal at the market price.

d. the market price is determined by the interactions among all buyers (households) and firms.

redhornet79

Which of the following is true under conditions of pure competition?

1. each individual firms has the ability to set its own price.

2. there are differentiated products.

3. no single firm can influence the market price by changing its output.

4. the market demand curve is perfectly elastic.

pucebutterfly872

Describe an industry that would meet the conditions of a perfectly competitive industry which are

a) There are many buyers and sellers so neither side of the market has market power;

b) The product provided to the market is identical across suppliers; and

c) There are no barriers to entry.

How do individual firms in a perfectly competitive industry respond to an increase in the market demand for the product? Would advertising by individual firms in this type of market provide any benefits?

whiteimpala587

ECON 208 Lecture Notes - Average Variable Cost, Competitive Equilibrium, Economic Equilibrium

ECON 208 Full Course Notes

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