ECON 103 Lecture Notes - Lecture 17: Average Variable Cost, Marginal Cost, Variable Cost

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brownduck883

18 Aug 2018

School

George Mason University

Department

Economics

Course

ECON 103

Professor

Donald Boudreaux

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Document Summary

Chapter 9: price takers and the competitive process. Price-searcher nike, sony, nintendo firms produce products that differ and therefore they can alter price. The amount that the price- searcher firm is able to sell is inversely related to the price it charges. Also called price-taker markets: pure co(cid:373)petitio(cid:374) are referred to as (cid:862)pri(cid:272)e-taker (cid:373)arkets(cid:863) (cid:374)o(cid:449, barriers to entry, obstacles that limit the freedom of potential rivals to enter and compete in an industry or market. It should be noted that price-taker markets and purely competitive markets are really alternative names for the same thing. Marginal revenue is the change in total revenue divided by the change in output. (mr) In a price-taker market, marginal revenue (mr) will be equal to market price, because all units are sold at the same price (market price). (mr) = price (p) = change in total revenue / change in output. In the short run, the firm will expand output until mr = mc.

Related Questions

Which of the following is true about firms that are price takers?

a. They produce products that are different than their competitors.
b. They can sell only a portion of their output at the market price.
c. They are small relative to the total market.
d. The have downward-sloping demand curves.

orangeelk45

1. Characteristics of competitive markets

The model of competitive markets relies on these three core assumptions:

1.	There must be many buyers and sellers a few players can't dominate the market.
2.	Firms must produce identical products buyers must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing free entry into and exit from the industry.

The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry.

Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.

Scenario	Competitive?
The government has granted the U.S. Postal Service the exclusive right to deliver mail.	________________
Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some makers use higher-quality cotton than others, which is reflected in the apparel's prices.
Two taxi companies serve most of the market in a big city. Consumers don't care about which taxi company they take if they decide it's worth taking a taxi, they flag down the nearest one.	_________________
There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer available to

copperhamster111

1. Characteristics of competitive markets

The model of competitive markets relies on these three core assumptions:

1.	There must be many buyers and sellers a few players can't dominate the market.
2.	Firms must produce an identical product buyer must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing for free entry into and exit from the industry.

The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behaviour, assume for this problem that a market cannot maintain competition in the long run without free entry.

Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.

Is the scenario	Competitive?
Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.
In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors.
Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.
In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed.

amberfly263

ECON 103 Lecture Notes - Lecture 17: Average Variable Cost, Marginal Cost, Variable Cost

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