ECON 2G03 Study Guide - Final Guide: Market Power, Profit Maximization, Perfect Competition

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28 Nov 2017

School

McMaster University

Department

Economics

Course

ECON 2G03

Professor

Maria Papaconstantinou

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Document Summary

Perfect competition: a perfectly competitive market does not actually exist. So, to create one, we have to use theoretical assumptions: each firm in a perfectly competitive market is a price taker, not a price setter. Producer surplus: ps is the area above mc (it is also equal to profit, the area below mc is the tvc. Lr market: there are 3 scenarios for a lr competitive market, constant-cost. Costs do not increase as outputs increase. Thus, even if demand (& consequently supply) curves increase in the. Lr, the equilibrium will remain at the same price. Note: this is the scenario we saw in the previous examples (the lr equilibrium ends up: increasing-cost. Thus, when demand (& consequently supply) curves increase in the. Lr, the equilibrium price will increase: decreasing-cost. Consumer surplus is the term for the total beneft attained by all consumers in the market: we can calculate by taking the area between the demand curve & market price.

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

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

32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.

ECON 2G03 Study Guide - Final Guide: Market Power, Profit Maximization, Perfect Competition

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