CHAPTER 7 Flashcards
Quick Learn (25 cards)
What are the four basic market models?
Pure competition, monopolistic competition, oligopoly, pure monopoly
What characterizes pure competition?
Very large number of firms, standardized product, very easy entry/exit to and from industry
What characterizes pure monopoly?
One firm, unique product, entry/exit is completely blocked
What characterizes monopolistic competition?
Large number of sellers, differentiated product, non-price competition, entry/exit quite easy
What characterizes oligopoly?
Few sellers, standardized or differentiated product
How many firms are typically found in pure competition?
A very large number
What type of product is produced in pure competition?
Homogeneous product
What is the condition of entry in pure competition?
Very easy
What type of competition is emphasized in monopolistic competition?
Considerable emphasis on advertising, brand names, trademarks
What is the firm’s control over price in pure competition?
None
What is the relationship between marginal cost (MC) and marginal revenue (MR) for profit maximization?
P = MC
What is the definition of price takers?
Firms that have no significant control over product price
What does the average revenue (AR) equal in pure competition?
Price (P)
What is the formula for total revenue (TR)?
TR = P * Q
How is marginal revenue (MR) calculated?
MR = ΔTR/ΔQ
What does the term ‘break-even point’ refer to?
The point where total revenue equals total cost
In the short run, what happens if marginal revenue (MR) is less than marginal cost (MC)?
The firm will shut down unless MR at least meets MC
What does the supply schedule of a competitive firm indicate?
The quantity a firm will produce at a variety of prices
What is a key feature of pure competition regarding demand?
Perfectly elastic demand for an individual firm
Fill in the blank: In pure competition, firms cannot obtain a higher price by restricting _______.
output
True or False: In pure monopoly, there are many firms selling unique products.
False
What happens to the supply curve in the short run when price is below average variable cost (AVC)?
The firm will not produce
What is the relationship between average total cost (ATC) and profit at the break-even point?
Profit = (P - ATC) * Q
What does the MR = MC rule signify?
It indicates profit maximization
