ECO 3343 Lecture Notes - Lecture 3: Perfect Competition, Marginal Revenue, Demand Curve

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aa666

28 Jul 2022

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St. John's University

Department

ECO - ECONOMICS

Course

ECO 3343

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Document Summary

Perfect competition: everyone knows everything necessary to make an optimal decision. Technology- all alternative technologies available, cost of each technology, savings to firms, and effect on long run profits. Input costs- all alternative inputs available, all the different potential employees, all the different materials, parts, ingredients, and all alternative ways of combining them. Price of each alternative = additional cost of producing additional output at every output level. Technology and input costs result in the most efficient production. Demand- unfer perfect competition customers will buy at every price. Technology + input costs + demand results in maximum output at least possible cost. Customers know: prices charged by every businessman for a given product, know when any price is changed, characteristics of all competing product. All these three result in maximum consumer satisfaction. For 100 years all economic theory was constructed on perfect knowledge assumption. Imperfect information = people lack some information relevant in their decisions.

Related Questions

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

A benevolent cat bestows a cost saving technology on a single firm in a perfectly competitive industry. After the blessed event, the cat leaves Earth never to return. Prior to the technologyâs introduction all firms in the industry had identical cost functions and had access to identical technology. All other firms realize that the new technology lowers costs, and know exactly by how much it will do so (i.e. there is no uncertainty about the technologies efficacy). The technology is completely transferable by whoever owns it. Moreover, transference does not result in the technologyâs depreciation. Under these assumptions demonstrate that despite having the cost-saving technology the recipient firm is unable to earn long-run economic profits. Since it canât earn long-run economic profits should the firm even accept the technology?

Discuss the effects of various forms of technology on international business. What role does the Internet play? Explain the meaning of the appropriability of technology. What role does this play in international competitiveness? How can managers protect the proprietary technology of their firms?

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ECO 3343 Lecture Notes - Lecture 3: Perfect Competition, Marginal Revenue, Demand Curve

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