ECN 121 Chapter Notes - Chapter 12: Perfect Competition, Marginal Revenue, Takers

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olivedolphin875

4 Oct 2016

School

University of Portland

Department

Economics

Course

ECN 121

Professor

Hanig Ross

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Document Summary

Explain what it means for there to be free entry and exit in an industry. Explain why for an industry to be perfectly competitive, firms must have small market shares standardized products, and free entry and exit. An industry has free entry and exit when new producers can easily enter into an industry and existing producers can easily leave that industry. Calculate a firm"s total revenue, marginal revenue, and profit. Determine a firm"s optimal (profit maximizing) level of output. Explain what the price-taking firm"s optimal output rule is. The price-taking firm"s optimal output rule, a price-taking firm"s profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced. Explain why at the profit maximizing level of output, marginal revenue must equal marginal cost. Interpret what it means for a firm"s marginal revenue curve to be horizontal.

Related Questions

Suppose you are given the following information about a particular perfectly competitive industry:

Q^D= 6500-100P .....Market demand

Q^S= 1200P .....Market Supply

C(Q)=722+(Q²)/200 ......Firm's total cost function

Assume all firms in this perfectly competitive industry are identical.

a) Find the equillibrium price and the equilibrium quantity for the entire industry, the output supplied by the firm, and the profit of each firm.

b) Would you expect to see entry into or exit from this industry in the long run? Explain. What effect will entry or exit have on market equilibrium?

c) Suppose the long run total cost function is given by C(Q) = 6Q-3Q²+Q³. What will the price be in long run equilibrium in this industry? Is profit positive, negative or zero? Explain.

apricothorse950

6. The Herfindahl index is calculated by (Points: 5)
a. adding the squared value of the market shares of all the firms in the industry.
b. multiplying the squared value of the market shares of all the firms in the industry.
c. adding the percentage of industry output produced by the largest four firms.
d. adding the percentage of industry output produced by the largest eight firms.

7. In December 2004, the oil-producing nations of OPEC began reducing output to keep prices above $40 per barrel. In doing this, OPEC was acting as a monopoly even though there was more than one producer. OPEC is a: (Points: 5)
a. cartel.
b. price taker.
c. producer in a contestable market.
d. producer in a monopolistically competitive market.

8. The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a: (Points: 5)
a. horizontal demand curve and price equal the marginal cost in equilibrium.
b. horizontal demand curve and price exceeds the marginal cost in equilibrium.
c. downward-sloping demand curve and price equal the marginal cost in equilibrium.
d. downward-sloping demand curve and price exceeds the marginal cost in equilibrium.

9. Suppose an industry only has four firms and they each have 10 percent, 8 percent, 8 percent, and 6 percent of the market. The Herfindahl index of this market is closest to which of the following? (Points: 5)
a. 8
b. 32
c. 66
d. 264

10. A good which if supplied to one person is supplied to all and whose consumption by one individual does not prevent its consumption by another individual is known as (Points: 5)
a. a private good.
b. a public good.
c. an external good.
d. an internal good.

11. An effluent fee is: (Points: 5)
a. a fee requiring market participants to certify they have reduced total consumption-not necessarily their own individual consumption.
b. charges imposed by the government on the level of pollution created.
c. a fee paid by users of a public good.
d. charges imposed on the wealthy of our society to help pay for those less fortunate.

redbadger384

1. Characteristics of competitive markets

The model of competitive markets relies on these three core assumptions:

1.	There must be many buyers and sellers a few players can't dominate the market.
2.	Firms must produce identical products buyers must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing free entry into and exit from the industry.

The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry.

Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.

Scenario	Competitive?
The government has granted the U.S. Postal Service the exclusive right to deliver mail.	________________
Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some makers use higher-quality cotton than others, which is reflected in the apparel's prices.
Two taxi companies serve most of the market in a big city. Consumers don't care about which taxi company they take if they decide it's worth taking a taxi, they flag down the nearest one.	_________________
There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer available to

copperhamster111

ECN 121 Chapter Notes - Chapter 12: Perfect Competition, Marginal Revenue, Takers

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