EC 201 Lecture 11: Perfect Competition

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graycamel433

22 Mar 2017

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Businesses are price takers (no market power); they have no influence over the price. Large demands, relatively small firms; no power over one another. Price takers: firms take/accept the market price, and they have no ability to influence that price; no market power. Marginal revenue: the total revenue that is changed by a change in an additional unit of output. One firm"s market for the product is = to the marginal revenue. The price will always be the market price. Average revenue = revenue per unit or total revenue/ total output. Price = mr = ar in a perfect competition. Price for a perfectly competitive seller equals: average revenue divided by price, marginal revenue divided by price, total revenue, marginal revenue. When mc > mr produce less. **where mr = mc is the profit - maximizing point = where the business makes the most money.

Related Questions

1. When a profit-maximizing firm produces, they will be producing at that output at which marginal cost = marginal revenue:

all of the time
some of the time
on rare occasions
none of the time

2. Economics Profit is:

the same as accounting profit
sales minus explicit costs and implicit costs
sales minus variable costs and fixed costs
opportunity cost only

3. A market structure with so many firms that no one firm has any influence over price, and firms produce an identical product is called:

monopoly
oligopoly
perfect competition
monopolistic competition

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

identical products
perfect mobility
perfect knowledge
price maker

5. The demand curve in a perfectly competitive market is perfectly elastic.

true
false

emeraldwombat313

Which of the following is not necessarily a characteristic of perfect competition? (Points: 1)

low prices
a large number of buyers and sellers
a homogeneous product
perfect information

2. In the short run, a perfectly competitive ball bearing manufacturer will continue to produce at a loss if (Points :1)
it is covering all of its variable cost plus part of its fixed cost

it is covering all of its fixed cost
variable cost is less than the fixed cost
fixed cost is zero

3. The golden rule of profit maximization states that any firm maximizes profit by producing where (Points :
marginal revenue equals marginal cost
demand is unit elastic, and total revenue is the greatest
price equals marginal revenue
price equals marginal cost

4. Which of the characteristics of perfect competition assures that economic profit will be zero in the long run? (Points: 1)
There are easy entry and exit in the market.
Each firm is a price taker.
Each firm has access to perfect information.
Each firm is small relative to the market.

5. A constant-cost industry is distinguished by the fact that(Points: 1)
firms' short-run average total costs are horizontal
firms' short-run marginal cost curves are horizontal
the long-run industry supply curve is perfectly elastic
the short-run industry supply curve is perfectly elastic

6. Commodity products are (Points: 1)
pasteurized
bland
perceived by consumers to be identical
made by one manufacturer

7. In a perfectly competitive industry we are likely to find(Points: 1)
firms producing a wide variety of products
barriers to entry
no profit possible in the short run
firms that do not advertise

8. Perfectly competitive firms are price takers because (Points :1)
all small firms must take the price set by the largest firm in the market
firms take the price that government determines is a "fair" price
each firm is small and goods are perfect substitutes for one another
free entry and exit in the short run creates a constant market price in the long run

9. In perfect competition, if one firm raises its price, (Points :1)
others will follow
that firm will increase its revenues
that firm will lose revenues because other firms will not follow
all consumers will be adversely affected

10. Suppose, at its present rate of output, a perfectly competitive firm's marginal revenue exceeds both its marginal cost and its average variable cost. To maximize profit, the firm should (Points: 1)
lower the price
raise the price
increase output
reduce output

tanpig844

1. When a firm is in a monopolistic competition market, if the firm sells 25 goods at a product price of $10, what is the marginal revenue per unit of the good sold if it sells 5 additional goods when it reduced the product price to $9.

A. $270 B. $20 C. $4 D. $2.50

2. An article in the New York Times on technology in the 1990s, Michael Lewis wrote, 'The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge.' Lewis meant what when he said the benefits of new technology were "passed right through to consumers free of charge'?

A. In perfect competition, price equals the marginal cost of production. In this sense, consumers receive the new technology 'free of charge.'

B. In perfect competition, consumers place a value on the food equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology 'free of charge.'

C. In the long run, price equals the lowest possible average cost of production. In this sense, consumers receive the new technology 'free of charge.'

D. Firms in perfect competition are price takers. Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology being "passed right through to consumers free of charge.

3. 'The perfectly competitive market structure benefits consumers because.

A. Firms are forced by competitive pressure to be as efficient as possible.

B. Firms produce high-quality goods at low prices.

C. Firms add a much smaller markup over average cost than firms in any other type of market structure.

D. Firms do not produce goods at the lowest possible price in the long run.

cerisekoala77

EC 201 Lecture 11: Perfect Competition

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