Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Econ > Chapter 23 Perfect competition > Flashcards

Chapter 23 Perfect competition Flashcards

(58 cards)

Start Studying
1
Q

what is market structure?

A

features of a market that affect the behavior and performance of the firms within the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what are features of the market?

A

number of sellers, amount of info available, barriers to entry, product differentiation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

why are market structures important?

A
  1. understanding market structure helps us understand firm behavior
  2. it helps us analyze industry output and efficiency
  3. it helps us understand how price is determined within a market
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what is market power?

A

firm is considered to have market power when the firm can influence the price of the product it is selling or the terms in which the product is sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what are in competitive markets?

A

firms that have little or no market power

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what are in markets that are not competitive?

A

firms have a high degree of market power

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what are perfectly competitive markets?

A

firms have no market power

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what are perfectly competitive firms?

A

each firm is such a small part of the total industry that is can’t affect the price of the product it sells

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

why are firms price takers?

A

no individual firm can influence the price in the market, so firms must take the price that the market gives them
they take the market price and determine what quantity they want to produce at that price
each firm acts independently in a perfectly competitive market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what are assumptions about perfectly competitive markets?

A
  1. firms in the market produce identical products, so there are numerous perfect substitutes for a product
  2. consumers and producers have equal access to price info
  3. there are a larger number of firms in the market, and each firm supplies only a small portion of the market
  4. there are no barriers to entry or exit, so firms are free to enter and exit the market whenever they like
    very rare to happen
    lemonade stands, copy centers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what is no market power?

A

firms in perfect competition have a lack of leverage in their market, which means they have no market power or the ability to set price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what is no market power good for consumers?

A

guarantees they will receive competitive prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what is an entire market (industry) graph?

A

demand curve is downward sloping

supply curve is upward sloping

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what is an individual firm graph?

A

perfectly elastic demand curve bc if they try to charge a price above the market price no one will buy from them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what are price takers?

A

firms that have no market power in perfectly competitive markets bc they have to take the price that the market gives them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what is profit maximizing rule?

A

price takers will continue to produce output until MR=MC
when MR=MC is the profit maximizing point
this is the point where the difference between TR and TC is the greatest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is average revenue(AR)?

A

total revenue divided by the number of units sold
AR=TR/q
will always be equal to price in perfect competition bc price is constant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what is marginal revenue(MR)?

A

the incremental change in revenue when we sell one more unit

MR=change in TR/change in q

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

what is total cost?

A

TC=ATC x q

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what is MR in perfect competition?

A

in perfect competition the market price is the MR
in perfect comp. price is constant
firms produce at the point where MR=MC
MR=price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what output do firms choose for a perfectly competitive market?

A

P=MR=MC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what happens if MR>MC?

A

the firm should increase output until it reaches level q

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what happens if MR<MC?

A

the firm should decrease output until it reaches level q

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

what happens when P>ATC?

Study These Flashcards
A

the firm will earn a profit

25
what happens when P=ATC?
the firm will make zero economic profit in the short run, and the price is actually the long run equilibrium price
26
what happens when AVC< or equal to P
the firm will have a loss but should continue to operate in the short run you still make enough money on each unit you are selling, but you don't make enough money to cover your fixed costs your losses are less than your fixed costs
27
what happens when P
the firm will have a loss and should shut down | its losses will be equal to its fixed costs
28
what happens in a perfectly competitive firm's supply curve?
firms won't produce at below short run shutdown point
29
what happens with supply?
supply = MC above the intersection with AVC
30
what is an industry supply curve?
summation of all the individual supply curves | total the industry will supply is simply the sum of all the units supplied by the individual firms
31
why is the short run supply curve upward sloping?
because of diminishing marginal product | also means the industry supply also must be upward sloping
32
what factors influence industry supply?
1. changes in firm productivity 2. changes in resource(input) prices 3. changes in per-unit taxes 4. anything else that affects the firm's MC curve
33
what are signals?
convey info and incentivize firms to act appropriately | profits and losses signal to firms whether they want to enter a new market or exit a current market
34
what are economic profits?
firms enter the market that will cause output to increase, prices to fall, and profit to eventually disappear
35
what are economic losses?
firms exit the market that will cause output to decrease, prices to increase, and losses to eventually disappear
36
what is breakeven?
when a market is at the breakeven point, no firms will enter or exit bc the market is giving a normal rate of return
37
what are low barriers to entry?
the ease of entry and exit in pure competition markets is bc of the low barriers to entry
38
what is long run industry supply curve?
the relationship between price and quantity supplied by the entire industry once firms have been allowed to enter or exit
39
why is the long run supply curve more elastic than the short run supply curve?
supply becomes more elastic as time passes
40
what is a constant cost industry?
the long run supply curve is perfectly elastic | horizontal
41
what happens with a perfectly elastic supply curve?
it is possible to increase total output without increasing the long run per unit costs
42
why is long run price constant?
any shift in demand is eventually met by just enough entry or exit of suppliers so that the long run price is constant
43
how does supply react to an increase in demand for a constant cost industry?
quantity increases and price goes back it its previous level
44
how would you describe a long run industry supply curve in a constant cost industry?
horizontal perfectly elastic if there is a big increase in demand their is an equally large increase in supply
45
how would you describe the long run industry supply curve in an increasing cost industry?
upward sloping
46
what happens in the long run if demand increases in an increasing cost industry?
price will increase | if their is a big increase in demand their will be a small increase in supply
47
how would you describe the long run industry supply curve in a decreasing cost industry?
downward sloping
48
what happens in the long run if demand decrease in a decreasing cost industry?
price increases
49
why is there no long run economic profit?
a perfectly competitive industry, firms earn zero economic profit
50
what happens if firms are earning a profit in the short run?
more firms will enter the market, which will cause the supply curve to shift to the right, which will cause prices to fall until economic profits are zero
51
what happens if firms have negative profits?
firms will exit the market which will cause the supply curve to shift to the left, which will cause prices to rise until economic profits are zero.
52
are you in the long run when firms are entering and exiting the market?
NO, once the market stabilizes you are in the long run
53
what happens in perfect competition?
the market moves toward zero economic profit over time
54
what is marginal cost pricing(P=MC)?
ideal pricing bc the price consumers pay reflects the opportunity cost to society
55
what happens is P>MC?
not enough is being produced
56
what happens if P
too much is being produced
57
what happens in long run equilibrium in perfectly competitive markets?
prices are driven down to the minimum per unit cost only war to make more short run profits is to innovate and lower costs profits will attract entrants and market price will fall consumers benefit the most bc they get to buy at lowest possible price production will use the least costly combo resources
58
what are conditions for long run equilibrium in a perfectly competitive industry?
1. each maximizing is profits by producing q 2. the economic profit that each firm is making is equal to zero 3. all firms are content to stay in (or out of) the industry 4. the final result is AR=P=d=MR=MC= short run ATC= long run ATC

Econ (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions