ECON-2006EG Study Guide - Quiz Guide: Economic Surplus, Perfect Competition, Physical Capital
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7 Mar 2021
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Chapter outline: sellers in a perfectly competitive market, the seller"s problem, from the seller"s problem to the supply curve, producer surplus, from the short run to the long run, from the firm to the market: long-run competitive equilibrium. 3 conditions of a perfectly competitive market: no buyer or seller is big enough to influence the market price, sellers in the market produce identical goods, there is free entry and exit in the market. The seller"s problem = how do i decide what and how much to produce? . Economists identify 3 ingredients of the seller"s problem: making the goods how inputs are turned into outputs: A firm is any business entity that produces and sells goods or services. Production is the process by which the transformation of inputs to outputs occurs. Physical capital is any good, including machines and buildings used for production. The short run is a period of time when only some of a firm"s inputs can varied.
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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 |