ECON 102 Chapter Notes - Chapter 14: Market Power, Marginal Revenue, Profit Maximization

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peachkoala371

16 Apr 2019

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Competitive market - there are many buyers and many sellers in the market, and the goods offered by the various sellers are largely the same. Actions of any single buyer or seller in the market have a negligible impact on the market price. Each buyer and seller takes the market price as given. Price takers - buyers and sellers in competitive markets must accept the price the market determines. Firms can freely enter or exit the market. Firm in a competitive market tires to maximize profit. Average revenue - total revenue divided by the amount of output. How much revenue a firm receives for the typical unit sold (p x q) / q. For all types of firms, average revenue equals the price of the good. Marginal revenue - change in total revenue from the sale of each additional unit of output. For competitive firms, marginal revenue equals the price of the good.

Related Questions

1. Markets and competition In a perfectly competitive market, all producers sell (perfectly identical/different) goods or services. Additionally, there are (few,many) buyers and sellers. Because of these two characteristics, both buyers and sellers in perfectly competitive markets are price (takers,makers)

True or False: The market for lettuce does not exhibit the two primary characteristics that define perfectly competitive markets.

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

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

copperhamster111

ECON 102 Chapter Notes - Chapter 14: Market Power, Marginal Revenue, Profit Maximization

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