Microeconomics: Profit Maximisation Under Perfect Competition and Monopoly

These flashcards cover key concepts related to market structures, specifically focusing on Profit Maximisation Under Perfect Competition and Monopoly in Microeconomics.

What are the four distinct market structures?

1) Perfect Competition, 2) Monopoly, 3) Monopolistic Competition, 4) Oligopoly.

What is a price taker?

A seller that cannot control the price of the product it sells and must accept the market price.

What is the profit maximization rule for perfectly competitive firms?

Produce the quantity of output at which Marginal Revenue (MR) equals Marginal Cost (MC).

What does it mean for a firm to achieve resource allocative efficiency?

Resources are allocated efficiently when Price equals Marginal Cost (P = MC).

Under what condition does a perfectly competitive firm shut down in the short run?

If the price is less than average variable cost (P < AVC).

What happens to the supply curve when new firms enter a perfectly competitive market?

The market supply curve shifts rightward, causing prices to decrease.

What is the long-run equilibrium condition for firms in a perfectly competitive market?

Zero economic profit, where Price (P) equals Short-Run Average Total Cost (SRATC).

How is short-run supply determined for a perfectly competitive firm?

By the portion of the firm's marginal cost curve that lies above the average variable cost curve.

What occurs when economic profits are present in a perfectly competitive market?

New firms are attracted to enter the industry.

Define Productive Efficiency in the context of perfectly competitive firms.

It occurs when firms produce output at the lowest possible per unit cost, or minimum average total cost (ATC).