ECON 2 Lecture Notes - Lecture 12: Marginal Cost, Marginal Revenue, Perfect Competition

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rosebuffalo981

13 Aug 2020

School

Irvine Valley College

Department

Economics

Course

ECON 2

Professor

colins

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Document Summary

Perfect competition is a market structure characterized by complete absence of rivalry among the individual firms. This is a market said to be perfectly competitive when buyers and sellers believe that individually their own behaviour have no influence on the market price. These conditions ensure that in perfectly competitive markets all firms charge an identical price for their product. Any firm attempting to charge a price above its competitors will face a total loss of sales. This is because of product homogeneity and perfect knowledge by the buyers. Perfectly competitive firms also have no incentive to change lower price since they can sell their output at the existing market price. The firm in perfect competition is therefore a price taker, i. e. , it accepts the market price perceive their own demand curves and demand curves of their competitors to be perfectly elastic at the ruling market price.

Related Questions

In a perfectly competitive market, the firm is a price taker because _____.

the price is dictated by the largest firm in the market, and if a given firm lowers its price other firms will conspire against it

the firms in perfect competition are interdependent and if one firm charges a lower price, other firms will also lower their prices and all firms will incur an economic loss

the price in the market is the price that maximizes each firm's producer surplus

each firm makes a slightly different product

it produces only a tiny proportion of the total output of a particular good and buyers are well informed about the prices of other firms

eringnat560

1. A perfectly elastic demand function

Select one:

a. is characteristic of an individual firm operating in a perfectly competitive market.

b. shows that a consumer is willing to pay any amount for the product.

c. shows that the individual firm can increase sales by lowering the price of output.

d. has a marginal revenue that is always decreasing.

2. Your local farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

Select one:

a. a price maker and can therefore charge different customers different prices.

b. a price taker and cannot affect the market price of wheat.

c. always able to price produce above the competition and earn a larger profit.

d. never able to determine any prices he charges for anything, such as soybeans

3. All of the following are true regarding perfectly competitive price determination EXCEPT

Select one:

a. the individual firm takes the market price as given.

b. the individual firm is known as a market price maker.

c. the individual firm's marginal revenue curve is horizontal at the market price.

d. the market price is determined by the interactions among all buyers (households) and firms.

redhornet79

Suppose in the market of organic tea, there are only a few producers and the rivalry among these producers shows a higher concentration of HHI, that is, a higher level of intensity. This situation is most likely to occur when:

1) Sellers' supply grows at a higher rate and buyers' demand grows at a slower rate with almost equal size of each firm.

2) Buyer's demand grows at a slow pace and there are only 6-10 competitors in the industry with equal firm size.

3)Sellers' supply grows at a slower rate and buyers' demand grows at a higher rate with the unequal size of each firm.

4)Buyer's demand grows at a higher pace and there are only 6-10 competitors in the industry with the unequal firm size.

ECON 2 Lecture Notes - Lecture 12: Marginal Cost, Marginal Revenue, Perfect Competition

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