ECON 160 Chapter Notes - Chapter 14: Fixed Cost, Marginal Cost, Market Power

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indigoraven449

2 Dec 2016

School

Binghamton University

Department

Economics

Course

ECON 160

Professor

Susan W.Hanes

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Document Summary

Market power: when a firm can influence the market price of the good it sells: the meaning of competition. Competitive market: there are many buyers and sellers in the market. Goods offered by the various sellers are largely the same. Firms can freely enter or exit the market. Each buyer and seller takes the market price as given. Buyers and sellers in competitive markets must accept the price the market determines and, therefore, are said to be price takers: the revenue of a competitive firm. A firm in a competitive market tries to maximize profit (total revenue - total cost) Small firms take the price as given by market conditions. Average revenue: total revenue divided by quantity sold. Tells us how much revenue a firm receives for the typical unit sold so it always equals price. For all types of firms, average revenue equals the price of the good.

Related Questions

Which of the following characteristics does not apply to perfectly competitive markets?

a. Companies can enter and exit the market easily

b. Sellers in the market are price-takers

c. The number of buyers and sellers is small

d. Buyers and sellers have complete information about the identical products of all

lilacbadger994

1. Which of the following is a difference between a perfectly competitive market and a monopoly?

A. There are huge barriers to entry in a perfectly competitive market, while there are no barriers to entry in a monopoly.

B. The market demand curve faced by a perfectly competitive firm is horizontal, while the market demand curve in a monopoly is downward-sloping.

C. The sellers in a perfectly competitive market are price-makers, while a seller in a monopoly market is a price-taker.

D. The equilibrium price in a perfectly competitive market exceeds marginal revenue, while the equilibrium price in a monopoly equals marginal revenue.

2. Which of the following firms is likely to have the highest market power?

A. An oligopoly with homogeneous products

B. A monopoly

C. A monopolistic competitor

D. A perfectly competitive firm

graygrasshopper945

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 an identical product buyer must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing for 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 behaviour, 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.

Is the scenario	Competitive?
Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.
In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors.
Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.
In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed.

amberfly263

ECON 160 Chapter Notes - Chapter 14: Fixed Cost, Marginal Cost, Market Power

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