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AUECO101 Lecture Notes - Lecture 14: Market Power, Marginal Revenue, Marginal Cost

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ceriseherring980

29 Nov 2017

School

University of Alberta

Department

Augustana Faculty - Economics

Course

Professor

Kristin Cumming

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Document Summary

A market is competitive if each buyer and seller is small compared to the size of the market and, therefore, has little ability to influence market prices. Competitive market: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price (price takers) There are many buyers and many sellers in the market: 2. The goods offered by the various sellers are largely the same: 3. Firms can freely enter or exit the market. A firm in a competitive market tries to maximize profit, which equals total revenue minus total cost (tr=pxq (price multiply quantity) Average revenue tells us how much revenue a firm receives for the typical unit sold. Average revenue (ar): total revenue divided by the quantity sold. Marginal revenue (mr): the change in total revenue from an additional unit sold. For competitive firms, marginal revenue equals the price of the good.

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Related Questions

Which of the following is not a characteristic of a perfectly competitive market?

(i) Each firm is a price taker.

(ii) There are many buyers and sellers in the market.

(iii) The products sold by the firms in the market are homogeneous.

(iv) It is difficult for a firm to enter or leave the market.

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Which of the following is NOT a characteristic of a perfectly competitive market?

Select one:

a. It is difficult for a firm to enter or leave the market.

b. Each firm is a price taker.

c. There are many buyers and sellers in the market.

d. The products sold by the firms in the market are homogeneous.

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11. When firms have an incentive to exit a competitive market, their exit will:

a. drive down market prices.

b. drive down the profits of existing firms in the market.

c. decrease the quantity of goods supplied in the market.

d. All of the above are correct.

12. If a perfectly competitive firm currently produces where the price is greater than the marginal cost, it:

a. will increase its profits by producing more.

b. will increase its profits by producing less.

c. is making positive economic profits.

d. is making negative economic profits.

13. Does a consumer well being vary along a demand curve?

a. Yes. When price increases, consumers move to a lower indifference curve.

b. Yes. When price increases, consumers move to a higher indifference curve.

c. No. When price increases, consumers stay on the same indifference curve.

d. No. When price increases, the higher price has no effect on budget constraints or indifference curves.

e. None of the above

14. If a competitive firm sets its output such that marginal revenue, marginal cost, and average total cost are equal, economic profit must be:

a. Negative

b. positive

c. Zero

d. Indeterminate from the given information

15. Which of the following is a characteristic of a perfectly competitive market?

a. Firms are price setters.

b. There are few sellers in the market.

c. Firms can exit and enter the market freely.

d. All of the above are correct.