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DEPAUL / Economics / ECON 105 / What is the meaning of perfect competition?

What is the meaning of perfect competition?

What is the meaning of perfect competition?

Description

School: DePaul University
Department: Economics
Course: Priciples of Microeconomics
Professor: Anthony krautmann
Term: Winter 2016
Tags: Econ 105, Biner, depaul, and Week 8 notes
Cost: 25
Name: Econ 105, Week 8 notes
Description: Weeks 7-9 are notes after the midterm.
Uploaded: 03/09/2016
13 Pages 44 Views 2 Unlocks
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Week 8                                                                                02/24/16Don't forget about the age old question of What is the meaning of boyle`s law?

  • Profit = 𝜋
  • 𝜋 = Revenue -cost
  • = (P x C) - (T C)
  • Perfect Competition
  • Price is given by market
  • Given the market price, pick O firm which yields maximum profit
  • The Market price is determined by the supply and demand

  • Revenue vs. Cost
  • To increase output or not depends on how much additional revenue you get vs. how much additional cost (increases)
  • Marginal Revenue vs. Marginal Cost
  • M.R.- any additional revenue when the output is increased by 1.
  • M.C.- any additional cost when the output is increased by 1
  • If M.R. > M.C.; you are making money so increase output
  • If M.R. < M.C.; you are losing money so decrease output
  • If M.R. = M.C.; your profit is maximized.

  • Memorize these

  • Perfect Competition
  • Revenue= P* x(Q)
  • M.R. = P* x(Q +1)
  • M.R. = P*+ Q+ P*
  • M.R. = market price (is constant)
  • Here we are making money

We also discuss several other topics like What does wernicke's area do?

  • Short run decision
  • Short run- entry and exit is limited
  • Long run- free entry and exit

  • Short run decision- Already in the market. Should we produce or not?
  • Long run decision- Are you profitable or not? To stay or exit the market?
  • Short run- sunk costs and fixed costs are irrelevant
  • Variable cost is relevant

  • Example: Selling Pizza
  • P*= $12                Selling Pizza= -$3
  • F.C.= 5                        No selling= -$5
  • V.C.= 10                Price vs Variable COst
  • If the price is greater than V.C. then keep selling

  • The short run, shut down competition
  • If P* > min A.V.C., keep selling
  • If P* < min A.V.C., stop selling and shut down
  • Short run supply curve=
  • M.C. if P* > min A.V.C
  • Q if P* < min A.V.C.

We also discuss several other topics like What is the content of mendel’s laws?

  • Long run
  • P* must be at least the min A.T.C., if not exit the business.
  • P* > min A.T.C.
  • Assume in the long run that P* < min A.T.C.
  • These firms will exit the industry = supply decreases
  • P* increases → profitable for some = more firms enter
  • P* decreases → some firms will exit = supply decreases and so on.
  • Long Run
  • P* will be stable around min A.T.C of firm with the lowest cost (0 profit in the long run)
  • Market Demand Shift
  • Example: Assume that demand increases
  • In the short run, you may be able to make some money.
  • In the long run, you will make 0 profit
  • The supply is constant at mic A.T.C
  • TC = A.T.C. - A.V.C.
  • Total Cost= Average total cost- Average variable cost

We also discuss several other topics like What process has occurred when two populations of the same species become reproductively isolated from one another and independently evolve to the point that they can no longer interbreed?

We also discuss several other topics like What is the most successful animal phylum?

We also discuss several other topics like What is your main point or thesis statement for your essay?

  • Example with numbers:
  • 1. TC(2) = 180(90.2)
  • 2. FC(2) = 180 - 80 =100
  • VC(2) = 40.2
  • If P* = 60, O firm = 8 (when they intersect
  • 3. Profit if P* = 60?
  • Revenue = (60.8) = 460
  • A.T.C. = 45(45.8) = 360
  • Profit = 120
  • Short run min A.V.C. = 27
  • Long run min A.T.C. = 45

Monopolies

  • Monopolistic Market:
  • 1. One firm which is the price setter
  • 2. Many consumers which are price takers
  • 3. Good produced have no close substitutes
  • 4. There are barriers to entry (ex: legal (patent), natural (too effective))
  • 5. No perfect information

    Local Monopolies:
    ComEd is a local monopoly
    Nicor is a local monopoly

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