Exam (elaborations)
Perfect Markets
- Course
- Institution
This is just one chapter out of the entire book - the rest of the chapters for the grade 12 and first year economics can be viewed and bought from my profile
[Show more]
1 review
By: mosia • 4 year ago
Seller
Followwlnjes001
Reviews received
Content preview
Perfect MarketsTwo types of markets in an economy:
If firm is price taker it must accept
Perfect
price given by market
Imperfect
The more perfect a market is the greater competition If firm is price maker it can set
market price by fixing quantity
Definition/Characteristics of a perfect market supplied
Many buyers and many sellers
No barriers to entry or exit
Homogeneous/identical products
Perfect information Perfect market is unrealistic and is used to
compare real world markets to
No government intervention
o Many Buyers and Many sellers:
buyers and sellers(firms) have no market power
No single seller can change market price by the quantity it supplies
Each seller sells a tiny portion // each buyer buys a smaller fraction
o No barriers to entry or exit
New firms can enter without extra cost
New firms have immediate access to same technology, FoPs and info.
Also freedom of exit i.e. no sunk costs
A sunk cost is a cost of production that the firm cannot recover should it leave
the industry i.e. advertising costs
o Homogeneous/Identical parts
All firms produce exact same product
No difference in service/packaging
Consumers decide on which firm to back purely on price
If firms have high prices consumers will go elsewhere
If firms have low prices they won’t maximize profit
o Perfect information
All firms have perfect information
Buys know where they can get each product at lowest price
Sellers know where to find FoPs at lowest cost
o No government intervention
Gov. don’t intervene with aim to set prices
, Individual business and industry
Market structure:
Is the way a market is organized based on characteristics such as the number and strength of
buys & sellers, amount of competition, the amount of product differentiation and ease of
entry and exit from the market.
Each perfectly competitive firm is a price taker
Market structure: Reminder
Short run is a time period where there is at least one fixed cost
Long run is a time period where there are no fixed costs
Total cost (TC) = Variable costs(VC) + Fixed costs(FC)
Fixed costs do not change
Variable costs do change as amount of output changed
The graph on the left is a perfectly competitive MARKET and the graph on the right is a
perfectly competitive FIRM
At Po the Q demanded by buys is cost
Total the same as Q supplied by sellers
Average
The rightTotal
showsCost firms=set Quantity
the(ATC) price, as it is a price taker and takes the price given to it
by the market
¿ cost s
Average Fixed Cost (AFC) = Quantity
Variable cost s
Average Variable Cost (AVC) = Quantity
Marginal cost (MC) = change in total cost when the firm produces an extra unit of output
TC
( cost of producing an additional unit) Q
Total Revenue (TR) = Price x Quantity
Total revenue
Average revenue (AR) = Quantity = Price
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller wlnjes001. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $2.91. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
59325 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now