01:220:102 Lecture Notes - Lecture 16: Perfect Competition, Monopolistic Competition, Profit Maximization

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ultramarineclam19

26 Oct 2018

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01:220:102 Lecture Notes - Lecture 15: Cost Curve, Average Variable Cost, Marginal Cost

01:220:102 Lecture Notes - Lecture 16: Perfect Competition, Monopolistic Competition, Profit Maximization

01:220:102 Lecture Notes - Lecture 17: Average Variable Cost, Perfect Competition, Fixed Cost

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Firm produces as much or as little as they want at the price. Perfect competition requirements: many buyers and sellers, each with small market share. Nothing to hinder producers entering the industry. Exit: a producer leave the market: each firm"s total revenue will be equal to price * quantity sold. Mr = change in tr/change in quantity. Remember profit is total revenue - total cost. When observing total revenue, the optimal level of production is where the profit is maximized, not the highest quantity with a profit. Normal profit is where total revenue is equal to total cost and profit is zero. Don"t forget that we factor in the cost of capital and the entrepreneurial compensation into the total cost. Economic profit is where total revenue exceeds total cost. This encourages other firms to enter the market and the additional supply will lead to lower prices and force the firm back to normal profit.

Related Questions

If I were to open a business, I would choose the monopolistic competitive market.

Under monopolistic competition, with low barriers to entry and low capital requirements, firms are free to enter into or exit from the industry at any time. In addition, in monopolistic competition, large numbers of sellers offer closely related but not homogeneous products. This is the reason why each firm has a limited share of the market and has limited control over the market price. Thus, changes in one firmâs output have only a slight impact on market price or it also means that firms in monopolistic competition are price setters rather than price takers. In the short run, firms can make excess economic profits. However, as barriers to entry are low, other firms have an incentive to enter the market, increasing the competition, until overall economic profit is zero.

In order to yield the greatest profit, a firm engaged in monopolistic competition will focus on product quality, location, service, and advertising, since the major tool of competition is product differentiation. For example, if I opened a restaurant, the restaurant would have a menu with different dishes and different prices to other restaurants nearby and the prices of the dishes also would depend on its location, the food ingredients, the food quality, and the speed of service. With the purpose of gaining profit for the restaurant, I would try to be dynamically efficient, innovative and develop new ways to attract and retain local custom as well as maintain cost efficiency, which could keep the cost below the average profit.

I need a peer reply for this discussion and it should be 250 at least

bronzefrog162

Step 1: Read the following scenario. Imagine a market where there is perfect competition between two or more companies, such as a fish market where vendors offer the same products at the same price or online ticket auctions like StubHub. In this market there are four key elements to perfect competition: a large number of buyers and sellers no barriers to entry or exit perfect mobility for customers choosing products homogenous products

Step 2: Use the scenario to answer the following questions. In a one-page (250-word) document, answer the following questions using the information provided in the scenario in Step 1: Explain how output, price, and profit are determined in your perfectly competitive market in the long run. How does that lead to efficiency? How could changes in technology affect the market? How could an increase in demand affect the market? What are the effects of new businesses entering the market? What are the effects of businesses leaving the market?

mauvepig773

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

01:220:102 Lecture Notes - Lecture 16: Perfect Competition, Monopolistic Competition, Profit Maximization

01:220:102 Lecture Notes - Lecture 15: Cost Curve, Average Variable Cost, Marginal Cost

01:220:102 Lecture Notes - Lecture 16: Perfect Competition, Monopolistic Competition, Profit Maximization

01:220:102 Lecture Notes - Lecture 17: Average Variable Cost, Perfect Competition, Fixed Cost

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