ARE 2150 Lecture Notes - Lecture 20: Market Power, Perfect Competition, Profit Maximization

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cerisecrow681

29 Jan 2020

School

UConn

Department

Agricultural and Resource Economics

Course

ARE 2150

Professor

Emma Bojinova

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Document Summary

Because each individual firm sells a sufficiently small proportion of total market output, its decisions have no impact on market price. Price taker: firm that has no influence over market price and thus takes the price as given. In contrast, when products are heterogeneous, each firm has the opportunity to raise its price above that of its competitors without losing all of its sales. The assumption of product homogeneity is important because it ensures that there is a single market price, consistent with supply-demand analysis. Free entry (or exit): condition under which there are no special costs that make it difficult for a firm to enter (or exit) an industry. With free entry and exit, buyers can easily switch from one supplier to another, and suppliers can easily enter or exit a market. Many markets are highly competitive in the sense that firms face highly elastic demand curves and relatively easy entry and exit.

Related Questions

In a perfectly competitive market

1.a firm faces a perfectly elastic demand because there is unrestricted entry and exit.

2.if a firm raises its price, it will lose some, but not all, of its customers.

3.when a firm sells another unit of output, the addition to total revenue is equal to market price.

4.all of the above

1. If the ATC curve is above the demand curve in a perfectly competitive firm, the firm will have a:

2. If the ATC curve is below the demand curve in a perfectly competitive firm, the firm will have a:

3. Even if in the short run, a perfectly competitive firm has a profit; in the long run, they always break even because:

- low barriers to entry

- profit incentives attract new firms

- perfectly homogenous products

- all of the above

4. A perfect competitor would:

- never charge above market price but might charge below market price

- never charge below market price but might charge above market price

- always change the market price

- none of the above

5. The crucial aspect of competition among firms that leads to the condition of zero profits in the long run is

- the number of firms in the industry is fixed

- free entry and exit of firms in the industry

- fixed costs equal zero

- all costs are at their least cost level.

mauvewombat755

In a perfectly competitive market, the firm is a price taker because _____.

the price is dictated by the largest firm in the market, and if a given firm lowers its price other firms will conspire against it

the firms in perfect competition are interdependent and if one firm charges a lower price, other firms will also lower their prices and all firms will incur an economic loss

the price in the market is the price that maximizes each firm's producer surplus

each firm makes a slightly different product

it produces only a tiny proportion of the total output of a particular good and buyers are well informed about the prices of other firms

eringnat560

ARE 2150 Lecture Notes - Lecture 20: Market Power, Perfect Competition, Profit Maximization

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