Week 6 Flashcards
(10 cards)
1
Q
what are the perfect competition assumptions
A
- market has many buyers and sellers
- homogenous goods (identical), therefore price takers
- no barriers
- perfect information and low transaction costs
- benchmark of efficiency
2
Q
describe perfect competition in the short run
A
amount of capital employed and no of firms in the market is fixed
3
Q
draw the profit max diagram
A
week 6 slide 4
4
Q
describe revenues
A
- TR = P x Q
- AR = TR/Q = P
5
Q
what is marginal revenue
A
additional revenue from selling one additional unit of output
- dTR/dq
6
Q
draw the revenue diagrams
A
week 6 slide 8
7
Q
describe shutdown point
A
in the short run a firm can continue even if making a loss as long as it covers its variable costs, in long run if cant then shut down
8
Q
describe industry supply curves
A
horizontal sum of individual supply curves
- week 6 slide 16
9
Q
describe long run competitive equilibrium
A
- free entry (no barriers)
- all factors of production are variable (enter due to supernormal profits, leave due to losses)
- competitive equilibrium occurs at point where the market price is equal to minimum average total cost
- the firm earn zero economic profit at equilibrium
10
Q
A
