Finals: Market Structureand Pure Competition

• 4 Types of Market Structure

  1. Pure Competition
  2. Monopolistic competition
  3. Oligopoly
  4. Pure Monopoly
• Involves a very large number of firms producing a standardized product. New firms can enter or exit the industry very easily

  Pure Competition
• is characterized by a relatively large number of sellers producing differentiated products

  Monopolistic Competition
• this involves only a few sellers of a standardized or differentiated product, so each firms are affected by the decisions of its rivals

  Oligopoly
• Is a market structure in which one firm is the sole seller of a product service for which there is no good substitute because the product is unique

  Pure Monopoly
• True or False: Since the entry of additional firms is blocked, unique product, so product differentiation is not an issue in the pure monopoly.

  true
• Pure Competition Characteristics:

  1. Very large numbers
  2. Standardized products
  3. Price takers
  4. Free entry and exit
• this is when identical or homogeneous products, no attempt to differentiate their products, do not engage in other forms of non price competition, they produce ____

  standardized products
• true or false: in pure competition, the MR and the Price are not equal

  false because in pure competition, MR=P
• this is the total revenue from the sale of a product divided by the quantity of the product sold.

  Average Revenue
• this is the total number of pesos received by a firm from the sale of product

  total revenue
• it is the change in total revenue that results from selling 1 more unit of a firm's product

  marginal revenue
• when P>AVC>ATC, you are going to operate or produce more units as if we applied MC=MR Rule, it is a

  profit maximization
• when ATC>P>AVC, you are going to operate or produce units as if we applied the MC=MR Rule, it is a

  loss minimization
• when P<AVC, the firm should

  shut down
• what do you call the profit when ATC=P

  normal profit
• True or False: MR>MC, should not operate or produce any unit of output

  false, the firm should produce any unit of output because the firm would gain more in revenue from selling that unit than it would add to its cost by producing it
• true or false: MC>MR, the firm should produce that unit,

  false, they should not produce any units because producing it would add more to costs than to revenue, and profit would decline, or loss would increase
• true or false: in the short run the firm will maximize or minimize loss by producing the output at which MR=MC

  true
• This is the portion of the firm’s marginal cost curve that lies above the average variable cost curve

  short-run supply curve
• 3 Assumptions in Pure Competition (long run)

  1. entry and exit only
  2. identical costs
  3. constant-cost industry