ECON-2110 Study Guide - Midterm Guide: Marginal Revenue, Marginal Cost, Demand Curve

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2 Feb 2019

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Industry is competitive when firms don"t have much influence over the price of their product. Economic profits are typically less than accounting profits. Firms want to maximize economic profit: fixed costs: costs that do not vary with output (e. g. rent, you still have to pay if you don"t produce anything! For a firm in a competitive industry mr = price. To maximize profit, marginal revenue > marginal cost. Basically if the price is so low the firm can"t cover its average variable cost, then the firm should shut down immediately: entry, exit, and industry supply curves a) Competitive industry: one where the product being sold is similar across sellers, there are many buyers and sellers (each small relative to total market), there are many potential sellers. Increasing cost industry: (1) costs rise as more firms enter (2) supply curves slope upward.

Related Questions

Describe an industry that would meet the conditions of a perfectly competitive industry which are

a) There are many buyers and sellers so neither side of the market has market power;

b) The product provided to the market is identical across suppliers; and

c) There are no barriers to entry.

How do individual firms in a perfectly competitive industry respond to an increase in the market demand for the product? Would advertising by individual firms in this type of market provide any benefits?

whiteimpala587

What determines the entry and exit of firms in a perfectly competitive industry in the long run? In a perfectly competitive industry in the long run,

A. new firms cannot enter the market due to barriers but existing firms will exit if they are experiencing losses.

B. new firms will enter if market demand exceeds market supply and existing firms will exit if market supply exceeds market demand.

c. new firms will enter if existing firms are making a profit and existing firms will exit if they are breaking even or experiencing losses.

D. new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses.

E. new firms will enter if the price is above the shutdown point and existing firms will exit if the price is below the shutdown point.

coffeeprairie-dog9

Grocery stores and gas stations in a large city would appear to be examples of competitive markets. There are numerous, relatively small sellers, each seller is a price taker and the products are quite similar.

A. Is it possible these markets are perfectly competitive? How could we argue that the firms face a demand curve that is not perfectly elastic? Use the definitions and characteristics of the different market structures to justify your reasoning.

B. How profitable do you expect grocery stores and gas stations to be in the long run?

greycheetah389

ECON-2110 Study Guide - Midterm Guide: Marginal Revenue, Marginal Cost, Demand Curve

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