Table of Contents
Can a monopolist incur losses in the short run?
In the short-run, a monopolist firm cannot vary all its factors of production as its cost curves are similar to a firm operating in perfect competition. Also, in the short-run, a monopolist might incur losses but will shut down only if the losses exceed its fixed costs.
What happens in the long run if a monopolistic competitive firm is making short run profits?
While a monopolistic competitive firm can make a profit in the short-run, the effect of its monopoly-like pricing will cause a decrease in demand in the long-run. This increases the need for firms to differentiate their products, leading to an increase in average total cost.
How do monopolistic firm make profit in the short run and long run?
In the short run, a monopolistically competitive firm maximizes profit or minimizes losses by producing that quantity where marginal revenue = marginal cost. If average total cost is below the market price, then the firm will earn an economic profit.
What happens to a monopolistically competitive firm in the long run?
In the long run, a monopolistically competitive industry will end up in zero-profit-equilibrium. Each firm makes zero profit. The typical firm’s demand curve is just tangent to its average total cost curve at its profit-maximizing output.
How do you determine the number of firms in a perfectly competitive firm?
Perfectly competitive firms will set P=MC, so 20=4+4q, so q=4. If each perfectly competitive firm is producing 4, market output is 20, there will be 5 perfectly competitive firms in the industry.
Why would a firm choose to operate at a loss in the short run?
A firm might operate at a loss in the short-run because it expects to earn a profit in the future as the price increases or the costs of production fall. In fact, a firm has two choices in the short-run. Each unit produced generates more revenue than cost, thus, it is profitable to produce than to shut down.
What price will a perfectly competitive firm end up charging in the long run Why?
What price will a perfectly competitive firm end up charging in the long run? Why? It will charge a price equal to the minimum of its average cost of production, because perfect competition drives the price down to the zero profit level. (If price is above average costs then economic profits are being made.
What is the most profitable level of output for a monopolist?
A monopolistic market has no competition, meaning the monopolist controls the price and quantity demanded. The level of output that maximizes a monopoly’s profit is when the marginal cost equals the marginal revenue.
Which of the following is not true of a perfectly competitive firm?
The correct answer is D. Relative to the size of the market, the firm is small is not true about a perfectly competitive firm.
Which of the following is most likely to be a perfectly competitive firm?
Fast food industry and clothing industry are most likely to be perfectly competitive because a perfectly competitive market is an organized market with the liberty of free entry and exits of firms, and both the sellers and buyers have perfect knowledge about the market and prevailing prices.
Under what conditions will a competitive firm continue to grow in size?
The profit-maximizing choice for a perfectly competitive firm will occur where marginal revenue is equal to marginal cost—that is, where MR = MC. A profit-seeking firm should keep expanding production as long as MR > MC.
At what point will a perfectly competitive firm choose to produce?
The profit-maximizing choice for a perfectly competitive firm will occur at the level of output where marginal revenue is equal to marginal cost—that is, where MR = MC. This occurs at Q = 80 in the figure.
Why is a perfectly competitive firm demand curve horizontal?
A perfect elasticity of demand refers to a situation where any increase in price forces the demand to drop. Therefore, perfect competition firms will exhibit a horizontal line in its individual demand curve, because exact substitutes are available in the market.
Why does Mr equal demand in a perfectly competitive firm?
The marginal revenue received by the firm is the change in total revenue from selling one more unit, which is the constant market price. So a perfectly competitive firm’s demand curve is the same as its marginal revenue curve.
Why do individual firms in perfectly competitive markets have flat demand curves?
In the case of the perfect competition model, since sellers are price takers and their presence in the market is of small consequence, the demand curve they see is a flat curve, such that they can produce and sell any quantity between zero and their production limit for the next period, but the price will remain …
What does a perfectly inelastic demand curve look like?
The demand curve for a perfectly inelastic good is depicted as a vertical line in graphical presentations because the quantity demanded is the same at any price. Supply could be perfectly inelastic in the case of a unique good such as a work of art.
What is the difference between a perfectly elastic and a perfectly inelastic demand curve?
Perfectly Inelastic Demand: When demand is perfectly inelastic, quantity demanded for a good does not change in response to a change in price. Finally, demand is said to be perfectly elastic when the PED coefficient is equal to infinity. When demand is perfectly elastic, buyers will only buy at one price and no other.
What is inelastic demand curve?
Inelastic demand in economics occurs when the demand for a product doesn’t change as much as the price. Consumers will not buy more or less gas, despite a price increase or decrease. A steep demand curve graphically represents it. The steeper the curve, the more inelastic the demand for that product is.