Perfect Comp, Monopolies, and Imperfect Markets

perfect competition

many firms, easy entry/exit, homogenous products, price takers

most efficient

perfect competition is the ___ ___ market structure

monopoly

one firm, difficult/impossible entry/exit, unique product, patent needed, price makers up to the demand line

most inefficient

a monopoly is the ___ ___ market structure

illegal

a monopoly is ___ for the most part

profit

what is left after subtracting costs from revenues

TR-TC

pi=___-___

positive profit

when TR>TC or P>ATC the firm can earn a ___ ___

break even

when TR=TC or P=ATC the firm can ___ ___

loss

when TR<TC or P<ATC the firm can incur a ___

shutdown

when TR<VC or P<AVC the firm must ___

can change VC and cover FC

why will a firm not shut down in the short run if P>AVC

profit maximization

the goal of every firm

MR=MC

profit is maximized at

marginal cost

the extra cost incurred from producing one more unit of a god

marginal benefit

the extra benefit/revenue from producing one more unit of a good

MR

ΔTR/ΔQ=

TR

PxQ

MC

ΔTC/ΔQ

P=MR

in a perfectly competitive market…

decrease Q

when MR<MC the firm needs to ___ ___ to lower VC and TC so that MR=MC

supply shifts right

when more firms enter the market, market P decreases and…

decrease

when market P decreases, the firm’s profit will ___

perfectly elastic

MRDARP is ___ ___ (horizontal)

high a price

monopolies produce too little at too…

key resource

barrier to entry: owned by a single firm; ex. DeBeers Diamonds (have intellectual rights)

governemnt

barrier to entry: ___ gives a single firm exclusive rights of production; ex. Drug companies, copyright, patents

single producer

barrier to entry: cost of production so high so it only makes sense that a ___ ___ can be most efficient; ex. gas, electric, water (natural monopoly)

downward

monopolists face a ___ sloping demand curve

golden rule

monopolists still abide by the ___ ___ where MR=MC for profit max

demand

a monopoly’s price occurs where output meets the ___ curve

MR<P

in monopolies, MR=MC but…

D=ATC

government could force monopolists to sell at ___ but still not “allocatively efficient”

elasticity demand

monopolists are price makers but within the ___ ___ bc of downward sloping demand curve profits are NOT unlimited

do not

because no comp, monopolies ___ ___ operate in the best interest in society

allocative efficiency

produce at the Q where P=MC

decrease Q, increase P

monopoly: MR<MC

increase Q, decrease P

monopoly: MR>MC

productive efficient

produce at the Q where ATC is minimum

allocative and productive

firms in perfect comp are the most efficient firms bc they are both ___ ___ ___ efficient

break even

PCLR1: all firms in a perfectly competitive market will ___ ___

zero

PCLR2: break even = ___ economic profits = LR equilibrium = normal profits

accounting profit

PCLR3: when economic profit = 0, ___ ___ is > 0

nothing

PCLR4: economic break even means there is ___ better this firm could be producing with its scarce resources other than what it’s currently producing (max efficiency)

price discriminating monopoly

the monopolist is charging the price according to what each individual consumer is willing to pay; ex. drug dealers, airlines

eliminates

price discriminating monopoly ___ consumer surplus and there is NO DWL

ATC is minimized

a PCF’s min-cost output corresponds to the level of output at which…