Session 10 firms in competitive markets
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A perfectly competitive market has many small firms, identical products, and free entry and exit. Each firm is a price taker and maximizes profits by producing where marginal revenue equals marginal cost. In the short run, firms will shut down if price is below average variable cost, while in the long run firms will exit if price is below average total cost. Market supply results from the aggregation of individual firm supplies. In the long run, entry and exit of firms drives the market to equilibrium with zero profits.
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14 firms competitive
In a perfectly competitive market:
- Many buyers and sellers exist
- Firms are price takers and the actions of any single firm do not impact the market price
- In the long run, firms will enter or exit the market until price equals minimum average total cost and economic profit is zero.
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Firms in competitive market
Firms in competitive markets are price takers and maximize profits by producing where marginal revenue equals marginal cost. In the short run, a competitive firm's supply curve is its marginal cost curve. In the long run, firms will enter or exit the market to earn normal profits when price equals average total cost. If demand increases in the short run, price and quantity rise as firms earn profits. In the long run, entry of new firms causes supply to increase, price and profits to fall back to normal.
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Monopoly
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- A monopoly maximizes profits by producing where marginal revenue equals marginal cost and charging a price above marginal cost.
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- Governments address monopoly power through antitrust laws, regulation, or public ownership to increase competition and efficiency.
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2) It provides an example of a potato farmer and cattle rancher who each have a comparative advantage in different goods, and would both be better off by specializing and trading.
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12 Firms in Competitive Markets.pptx
The document discusses key concepts regarding firms in competitive markets, including:
1) A competitive firm is a price taker and aims to maximize profits by producing where marginal revenue equals marginal cost. The portion of the marginal cost curve above average variable cost represents the firm's short-run supply curve.
2) In the long-run, firms will enter or exit the market until price equals minimum average total cost and profits are driven to zero. The portion of the marginal cost curve above average total cost represents the firm's long-run supply curve.
3) Market supply is determined by the summed individual firm supply curves. In the long-run, entry and exit of firms leads to a horizontal market supply curve
Perfect Competition
The document discusses the concept of perfect competition in economics. It provides the key characteristics that define a perfectly competitive market including that there are many small firms, no barriers to entry or exit, identical products, and complete information. Firms are price takers and seek to maximize profits by producing where marginal cost equals marginal revenue. In the long run, perfect competition leads to zero economic profits as new firms enter if profits are positive and firms exit if losses occur.
Unit 2 3 2 Perfect Competition
The document discusses key concepts relating to perfect competition, including:
- Firms are price-takers and face perfectly elastic demand in competitive markets
- Profit maximization occurs where marginal revenue equals marginal cost
- In the short-run, a firm may earn profits, losses, or just cover costs
- In the long-run, if profits exist, entry by new firms will increase supply and drive prices down until profits are eliminated
Managerial Economics Session 7
1. The document discusses the characteristics and pricing behavior of perfectly competitive markets. It defines perfect competition and describes its key features.
2. Under perfect competition, firms are price takers and equilibrium occurs where price equals marginal cost. In the short run, firms will shut down if price falls below average variable cost.
3. In the long run, firms will enter or exit the market until price equals minimum average cost and normal profits are achieved. Perfect competition leads to allocative and productive efficiency.
Market Perfect Competition_MBA_Parakramesh Jaroli
This document provides an overview of different market structures, with a focus on perfect competition. It defines key concepts related to revenue, costs, and profit maximization for firms in competitive markets. Perfect competition is characterized by many small firms, homogeneous products, free entry and exit, and perfect information. Under perfect competition, firms are price takers and marginal revenue equals price. Equilibrium occurs where marginal cost equals marginal revenue. The document also discusses long-run equilibrium and how perfect competition leads to allocative efficiency.
Chap5
This chapter discusses perfect competition and profit maximization in competitive markets. It contains the following key points:
1. Under perfect competition, there are many small firms and buyers/sellers, homogeneous products, free entry and exit, and perfect information. Firms are price takers and maximize profits by producing where marginal revenue equals marginal cost.
2. In the short run, firms will shut down if price falls below average variable cost or operate at a loss if price is between average variable and average total cost. In the long run, zero economic profits are achieved through free entry and exit of firms.
3. External changes like shifting demand curves or new technology can impact market equilibrium price and quantity in both the
Chap5
This chapter discusses perfect competition and profit maximization in perfect competition. It contains the following key points:
1. Under perfect competition, there are many small firms and buyers/sellers, homogeneous products, free entry and exit, and perfect information. Firms are price takers and maximize profits by producing where MR=MC.
2. In the short run, firms will shut down if P<AVC or operate to minimize losses if ATC>P>AVC. In the long run, zero economic profits are achieved through free entry and exit of firms.
3. External changes like shifting demand curves or new technology can impact market equilibrium prices and quantities in the short and long run through adjustments to
Ch07 cmba 401
The document discusses perfect competition in three sentences:
Perfect competition requires a large number of small firms, standardized products, and free entry and exit into the market. Under perfect competition, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. The market equilibrium price is determined by the intersection of total market demand and supply, with competitive firms earning profits or losses based on the relationship between price and their average total costs.
Marketstructures
There are 4 main types of market structures: perfect competition, monopoly, monopolistic competition, and oligopoly. Perfect competition is characterized by many small firms, homogeneous products, free entry and exit, and perfect information. Under perfect competition, firms are price takers and marginal revenue equals price. In both the short run and long run, firms will produce where marginal cost equals marginal revenue to maximize profits. The perfectly competitive market leads to productive and allocative efficiency.
Perfect competition iimm
This document discusses market structures, specifically perfect competition. It defines key features of perfect competition including a large number of buyers and sellers, homogeneous products, free entry and exit, and perfect information. Under perfect competition, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. In the long run, no firms earn supernormal profits and all firms earn only normal profits as entry and exit leads to equilibrium.
Market structures – perfect competition
The document discusses market structures, specifically perfect competition. It defines key characteristics of perfect competition including a large number of small firms, homogeneous products, free entry and exit, and firms being price takers. Under perfect competition, each firm's demand curve is perfectly elastic and marginal revenue equals price. Firms produce where price equals marginal cost to maximize profits. In the long run, normal profits are achieved as entry and exit cause supply to equal demand. Perfect competition leads to allocative and productive efficiency.
11perfectcompetitionclass 131210044835-phpapp02
This document discusses the concept of perfect competition. It defines perfect competition as a market with many small buyers and sellers, homogeneous products, perfect information, and free entry and exit. Under perfect competition, each firm is a price taker and faces a horizontal demand curve. In the short run, a perfectly competitive firm will produce where price equals marginal cost to maximize profits or minimize losses. In the long run, the market reaches equilibrium when no firms want to enter or exit and each firm produces at the lowest point on its long-run average total cost curve.
11 perfect competition class economics slides for ku
This document provides an overview of the key concepts of perfect competition, including:
(1) Perfect competition is defined by many small firms, homogeneous products, perfect information and free entry/exit.
(2) In perfect competition, each firm is a price taker and faces a horizontal demand curve equal to the market price.
(3) A perfectly competitive firm will produce where price equals marginal cost to maximize profits in both the short and long run.
(4) Long run competitive equilibrium exists when there are no incentives for firms to enter/exit the industry or change output levels.
Micro
This document summarizes key concepts related to monopoly, including:
1) A monopoly firm is the sole seller of a product without close substitutes and can set price. It produces where marginal revenue equals marginal cost, resulting in lower output and higher prices than perfect competition.
2) Monopoly power can be measured by the Lerner Index, which is the excess of price over marginal cost as a proportion of price. Monopoly power is greater when demand is less elastic.
3) A monopoly faces a downward sloping demand curve. Changes in costs, demand, or taxes affect price and quantity in complex ways depending on the elasticity of demand.
Lecture 4 & 5 18.02.13
- Firms in perfectly competitive markets take the market price as given and produce where their marginal costs equal marginal revenue to maximize profits.
- In the short run, an individual firm's supply curve is represented by its marginal cost curve above average variable cost. The industry supply curve is the sum of individual firm supply curves.
- In the long run, firms enter and exit the industry until price equals minimum average total cost and firms earn only normal profits, resulting in a horizontal industry supply curve. However, increasing input prices can cause the long-run supply curve to slope upward.
Perfect Competition market
The document describes the key characteristics and assumptions of perfect competition, including firms being price takers, products being homogeneous, and free entry and exit in the industry. It discusses how in the short run, firms will operate at a loss, normal profit, or supernormal profit depending on whether price is below, equal to, or above average total cost. In the long run, entry and exit of firms will drive price down to equal long run average cost, resulting in zero economic profit.
PERFECT COMPETITION MARKET
The document discusses perfect competition and perfectly competitive markets. It defines the key assumptions of perfect competition as firms being price takers, products being homogeneous, and free entry and exit in the industry. It explains that in the short run, competitive firms will operate at a loss, earn normal profits, or supernormal profits depending on whether price is below average cost, equal to average cost, or above average cost. In the long run, entry and exit of firms will drive prices down to equal minimum long run average cost, resulting in zero economic profits.
PROFIT MAXIMISATION using MR, MC and profit maximisation.pptx
The document discusses profit maximization and competitive supply in perfectly competitive markets. It can be summarized as follows:
1. Perfectly competitive markets are characterized by price-taking firms, homogeneous products, and free entry and exit. Firms seek to maximize profits by producing where marginal revenue equals marginal cost.
2. The competitive firm's short-run supply curve slopes upward as higher prices induce firms to increase production. In the long-run, firms adjust all inputs including plant size to minimize average costs and maximize profits.
3. Market supply is the sum of individual firm supplies. It has a kinked shape and is upward sloping in the short-run. In the long-run, firms enter
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11 perfect competition class economics slides for ku
11 perfect competition class economics slides for ku
PROFIT MAXIMISATION using MR, MC and profit maximisation.pptx
PROFIT MAXIMISATION using MR, MC and profit maximisation.pptx
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Session 10 firms in competitive markets
- 1. Session10 Firms in Competitive Markets Lectured by Prof. Dr. Ferdinand D. Saragih, MA
- 11. Table 1 Total, Average, and Marginal Revenue for a Competitive Firm Copyright©2004 South-Western
- 13. Table 2 Profit Maximization: A Numerical Example Copyright©2004 South-Western
- 14. Figure 1 Profit Maximization for a Competitive Firm Copyright © 2004 South-Western Quantity 0 Costs and Revenue MC ATC AVC MC 1 Q 1 MC 2 Q 2 The firm maximizes profit by producing the quantity at which marginal cost equals marginal revenue. Q MAX P = MR 1 = MR 2 P = AR = MR
- 17. Figure 2 Marginal Cost as the Competitive Firm’s Supply Curve Copyright © 2004 South-Western Quantity 0 Price MC ATC AVC P 1 Q 1 P 2 Q 2 This section of the firm’s MC curve is also the firm’s supply curve.
- 21. Figure 3 The Competitive Firm’s Short Run Supply Curve Copyright © 2004 South-Western Quantity 0 Costs MC ATC AVC Firm shuts down if P < AVC Firm ’ s short-run supply curve If P > AVC, firm will continue to produce in the short run. If P > ATC , the firm will continue to produce at a profit.
- 25. Figure 4 The Competitive Firm’s Long-Run Supply Curve Copyright © 2004 South-Western Quantity 0 Costs MC = long-run S Firm exits if P < ATC ATC Firm ’ s long-run supply curve Firm enters if P > ATC
- 27. Figure 4 The Competitive Firm’s Long-Run Supply Curve Copyright © 2004 South-Western Quantity 0 Costs MC ATC Firm ’ s long-run supply curve
- 29. Figure 5 Profit as the Area between Price and Average Total Cost Copyright © 2004 South-Western (a) A Firm with Profits Quantity 0 Price (profit-maximizing quantity) P = AR = MR ATC MC P ATC Q Profit
- 30. Figure 5 Profit as the Area between Price and Average Total Cost Copyright © 2004 South-Western (b) A Firm with Losses Quantity 0 Price (loss-minimizing quantity) ATC MC P = AR = MR P ATC Q Loss
- 33. Figure 6 Market Supply with a Fixed Number of Firms Copyright © 2004 South-Western (a) Individual Firm Supply Quantity (firm) 0 Price (b) Market Supply Quantity (market) 0 Price MC 1.00 100 $2.00 200 Supply 1.00 100,000 $2.00 200,000
- 35. Figure 7 Market Supply with Entry and Exit Copyright © 2004 South-Western (a) Firm ’ s Zero-Profit Condition Quantity (firm) 0 Price (b) Market Supply Quantity (market) Price 0 P = minimum ATC Supply MC ATC
- 39. Figure 8 An Increase in Demand in the Short Run and Long Run Firm (a) Initial Condition Quantity (firm) 0 Price Market Quantity (market) Price 0 D Demand, 1 S Short-run supply, 1 P 1 ATC Long-run supply P 1 1 Q A MC
- 40. Figure 8 An Increase in Demand in the Short Run and Long Run Copyright © 2004 South-Western Market Firm (b) Short-Run Response Quantity (firm) 0 Price Quantity (market) Long-run supply Price 0 P 1 MC ATC Profit P 1 D 1 D 2 S 1 P 2 Q 1 A Q 2 P 2 B
- 41. Figure 8 An Increase in Demand in the Short Run and Long Run Copyright © 2004 South-Western P 1 Firm (c) Long-Run Response Quantity (firm) 0 Price MC ATC Market Quantity (market) Price 0 P 1 P 2 Q 1 Q 2 Long-run supply B D 1 S 1 A D 2 S 2 Q 3 C