We always assume that the objective of firms is to maximize their profit regardless of the market type in which they operate.
Mıcroeconomıc Theory (ENG) — Ünite 6 Soru-Cevap
Mıcroeconomıc Theory (ENG) (IKT205U) soru-cevapları.
What is main goal of firm regardless of the market type?
what are main analytical tools to understand the output and pricing decisions of firms?
To understand the output and pricing behavior of firms, we utilize some analytical tools such as marginal revenue, average revenue, average variable, total costs, etc.
What are the assumptions of perfect competition?
The perfect competition depends on four assumptions. These are many firms and many consumers, no entry and exit barriers, firm produce homogenous product, full information.
- How is the product price is determined in the perfect competition?
The price is determined by the collective actions of consumers and producers (by demand and supply) and agents take the market-determined price as given for their economic behavior.
Why is the perfectly competitive firm is called as price taker?
Because no individual firm can affect the market determined product price.
What are the implications of assumption of “No Entry and Exit Barriers”?
If any industry appears to be attractive for profitable investments, any entrepreneur or firm is allowed to go into the market for investment without any barrier in perfectly competitive markets. Similarly, if any firm is running a loss in its operations, this firm can easily leave the market on its will. In sum, there is free entry and exit in perfectly competitive markets.
What is the meaning of goods sold and bought in perfectly competitive markets are homogenous?
It means that all products are the same in terms of their size, shape, quality, smell, package, etc.
What are the examples of perfectly competitive market?
Many agricultural products can be given as examples. If we ignore some taste and quality differences, for example, wheat can be considered homogenous across all farmers. Steel can be another example. All steel factories may be producing almost identical steel.
Why there is no need for advertisement in the perfectly competitive market?
Since they are fully informed about the qualities and the price of products sold in markets. Therefore, there is no need for advertisement in this type of market.
What is the shape of demand curve that individual firm faces In a perfectly competitive market?
Demand cure that perfectly competitive firm faces is horizontal at the market determined product price.
What is the relationship between Individual demand curve of perfectly competitive firm its marginal and average revenues?
Perfectly competitive firms individual demand curve equal to product price and marginal revenue (MR) and average revenue (AR).
Why is the average revenue of perfectly competitive firm is equal to its price?
Since AR=total revenue/quantity sold, then AR =TR/q=p*q/q=p
- To maximize the profit of firm, which condition should be hold?
Marginal revenue of firm should equal to its marginal cost.
If the total revenue of firm is greater than its total costs, what can be said about the firm?
Firm makes economic profit.
At the profit-maximizing output level, what can be said about the profits?
Marginal profit of firm equal to zero, since MR=MC.
When a perfectly competitive firm makes economic profit in the short-run?
When the price of product it greater its per unit cost (ATC) at the profit-maximizing output level.
In the long-run equilibrium of perfectly competitive market, does firm makes an economic profit?
No. since in the long-run equilibrium, price of product is equal to its per unit cost.
In the decreasing cost industries, what will be the shape of long-run supply curve?
It will be downward sloping long-run supply curve indicating that expanding output will cause a decline in the per unit cost of producing industry output.
What is pure monopoly?
If there is only a firm in a market producing a homogeneous product with no close substitute, that market is called a pure monopoly.
Is monopolistically competitive firm produces homogenous product?
No, because it produces deifferentiated product.