Managerial Economics Chapter 9 Essay - 1641 Words

CHAPTER 9 Three conditions for a market to be perfectly competitive? Many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market. In perfectly competitive markets, prices are determined by The interaction of market demand and supply because firms and consumers are price takers. Price taker Buyer or seller that is unable to affect the market price. A buyer or seller that takes the market price as given When are firms likely to be price takers? A firm is likely to be a price taker when†¦.. it sells a product that is exactly the same as every other firm. It represents a small fraction of the total market. Consumers are usually price takers when they buy most goods and†¦show more content†¦For a given decrease in demand, More firms exit a constant-cost industry than an increasing-cost industry Why are consumers so powerful in a market system? Because it is consumers’ demand that influences the market price and dictates what producers will supply in the market. What is meant by allocative efficiency? Allocative efficiency is when every good or service Is produced up to the point where price equals marginal cost Product efficiency When a good or service is produced at lowest possible cost. Briefly discuss the difference between these two concepts. Productive efficiency pertains to production within an industry while allocative efficiency pertains to production across industries. Perfect competition leads to allocative and productive efficiency Because prices reflect consumer preferences Because firms are motivated by profit â€Å"In a perfectly competitive market, in the long run consumers benefit from reductions in cost, but firms don’t.† Don’t firms also benefit from cost reductions because they are able to earn greater profits? No. Because short-run profits encourage entry, firms earn zero economic profit in the long run. The supply curve for a firm in a perfectly competitive market in the short run is That firm’s marginal cost curve for prices at or above average variable cost. CHAPTER 10 What is a monopoly? A firm is the only seller of a good or service that does not have a closeShow MoreRelatedEssay on Chapter 1 Profits Managers And Markets 1 1201 Words   |  5 PagesCHAPTER 1 The Fundamentals of Managerial Economics McGraw-Hill/Irwin Copyright  © 2014 by The McGraw-Hill Companies, Inc. 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