Questions tagged [perfect-competition]

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Competitive input markets and allocative efficiency

Suppose two firms are operating in a competitive input and output markets. If the two firms' production functions are $(k_1l_1)^{1/3}$ and $(1+k_1)^{-1} (l_2)^{1/2}$ where $k_1, l_1, l_2$ denote the ...
guest's user avatar
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No difference in profits between quantity where MR>MC and quantity where MR=MC

Let's say that we produce 70 units as in the picture above. MR = \$4 , MC = \$2.5 and profit is \$90. Each of the next 10 units (till 80 units) have a positive contribution to profit since their MR>...
johnniem's user avatar
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How is it possible to have perfect balance of supply and demand?

How is it possible to have perfect balance of supply and demand? That is, e.g. the right amount of workforce compared to the amount of work. Background (as asked by Giskard in the comments): It's ...
mavavilj's user avatar
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How does Perfectly Competitive Output Level Compare to Cournot Output Level

So Let there be two firms with Output Level x1 and x2 .Inverse Demand Function $P=a-bX $ where $ X=x1+x2 $.Both firms have same MC denoted by $c$. Is the Perfectly Competitive O/t > Cournot O/t ...
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Aren’t all firms price-takers?

So I hear this distinction between price-taking firms and price-making firms in regards to perfect competition. Price-taking firms are firms that accept the price determined by supply and demand. But ...
Anthony Fallone's user avatar
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Finding Quantity when Profit = 0

I'm struggling to find the correct answer which is (B). So far what I've done is say that P=MC as we're in a perfectly competitive market. So profit = PQ - TC which gives 0 = (2Q)Q -(VC+4) ? But we ...
Inès's user avatar
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2 answers
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How does perfect competition work?

I have made several other posts about this topic, but all the answers I got confused me even more. This is my attempt at making a comprehensive post that highlights my confusion about perfect ...
Anthony Fallone's user avatar
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2 answers
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Why can't an individual producer influence market price in perfect competition?

I’ve been told that under perfect competition, an individual producer is a price-taker and has no influence on the market equilibrium price. But this doesn’t make sense to me since the market ...
Anthony Fallone's user avatar
2 votes
3 answers
245 views

How can an individual firm sell ANY quantity for the market price under perfect competition?

I keep hearing that under perfect competition, an individual firm can sell ANY quantity as long as they sell at the equilibrium price. But this doesn’t make sense to me. For the market supply and ...
Anthony Fallone's user avatar
3 votes
3 answers
298 views

How is it possible for demand to be perfectly elastic under perfect competition?

So according to perfect competition, a single firm is a price taker, having to sell at the equilibrium price as determined by supply and demand. As you can see from the single firm graph, demand is ...
Anthony Fallone's user avatar
3 votes
2 answers
377 views

Does profit maximization imply cost minimization in both pure competition and monopoly?

How do I show that profit maximization implies cost minimization (in pure competition)? Suppose we only consider inputs $l,k$ whose prices are $w,r$ and output price $p$. Profit is $\pi = pf(k,l) - wl ...
Rick_Morty's user avatar
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1 answer
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Industry supply and short-run cost function

If we know that the long-run number of firms in a competitive market is $50$, the total short-run cost (associated with the long-run equilibrium output) is $C_s(q) = 0.5q^2 - 10q + 200$, can we say ...
Rick_Morty's user avatar
4 votes
2 answers
995 views

Violation of the zero-profit condition

Suppose a perfectly competitive firm has cost function $C(q) = 40 + 0.5q + 0.05q^2$. If the market price is $p = 8$, the profit made is maximized at $MR = MC \implies 8 = 0.5 + 0.1q \implies q^{*} = ...
Rick_Morty's user avatar
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Perfect competition allocations

Suppose the market demand is $P(Q) = \alpha - \beta(Q)$ where $Q = \sum q_1$. Variable $q_i$ denotes the output of the $i$th firm and $Q$ is the total output. The marginal cost for each firm is $c$. ...
Rick_Morty's user avatar
3 votes
1 answer
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In a perfectly competitive market, how are the market demands taken into consideration?

In a perfectly competitive market, how are the market demands taken into consideration? Or is it that the market demand isn't a concept there as such due to a very large market and setting the price ...
Rick_Morty's user avatar
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Duopoly Paradox

In these lectures, the professor shows that in a Cournot Duopoly, firms will supply a total market quantity of identical goods between that of a monopoly and that of a perfect competition, while in a ...
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Book reference for graphs explaining ad valorem and specific taxes

Does anyone know any book in which I can read and see graphs about the ad valorem or specific tax in monopolies or perfect competition? I need a graph like this with the explanation but i can't find ...
Glohelt's user avatar
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2 answers
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Why Marginal Cost (MC) equal Market Price (PC)?

In most models, perfect competition implies that MC = P, shouldn't it be the average cost that is equal to price instead? If the Average Cost is greater than the Marginal Cost, firms are losing money ...
Kien's user avatar
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Supply and Demand Curves under Perfect Competition

I am real learning microeconomics with a bit more math under my belt, but could not understand why the MR=P in competitive markets. This was my attempt at reasoning Given, $R= P*q$ For a linear demand ...
RadDragon's user avatar
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Why is the number of firms in the short run fixed?

My textbook says that in perfect competition the condition of free entry and exit only applies to the long run equilibrium. Because in the short run no new firms can enter or old ones can leave the ...
Ananya's user avatar
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Long run equilibrium price under perfect competition

I have a problem related to Ricardian rent. I have one firm, let's call it X firm, and all of the other firms in the market. All firms have to pay some transportation costs due to their land except ...
madetolast's user avatar
2 votes
1 answer
569 views

Uniform price vs. pay-as-bid auctions in energy markets

These two types of auctions are most commonly used in the energy trading markets. What would be advantages and disadvantages of each? And in the end, can we expect them to deliver similar outcome? One,...
bajun65537's user avatar
1 vote
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Competitive markets, taxation and international trade

Suppose that in a competitive market, the supply function is given by $S(p) = 5000(p-2)$ and the demand function is given by $D(p) = 2000(16-p)$. Suppose still, that in order to recompose its' budget ...
Pedro Cunha's user avatar
1 vote
2 answers
139 views

Why wouldn't other firms follow suit if an individual firm decides to cut its price?

Why doesn't the demand curve an individual firm faces in a perfectly competitive market have the same elasticity as it does in a oligopolistic market? Under perfect competition, if a firm increases ...
Ethereal's user avatar
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1 answer
103 views

Microeconomics question

I'm given this question. I'm not sure if I'm doing it right. Can any one help? ...
user avatar
3 votes
2 answers
1k views

Why does a firm make profit in a perfect competition market

I'm solving a problem about $n=180$ firms in a perfect competition market, where demand is given by $D(p)=100-5p$. A firm's cost function is $c(q_i) = 2 \cdot (q_i)^2$. Using $p = c'(q_i)$ and the ...
Friedrich's user avatar
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7 votes
3 answers
933 views

Long Term Economic Profit for Perfectly Competitive market

When we consider a perfectly competitive market, in the short run we will run a firm if the total economic profit though negative till price is above shutdown point.In long run we will run at an ...
santhosh kota's user avatar
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1 answer
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Is the minimum of short run average cost equal to the minimum of long run average cost? [duplicate]

I understand that for perfect competition, the price is equal to minimum short and long run average cost in the long run as there cannot be any supernormal profits. Does this mean that the short run ...
danielmason's user avatar
1 vote
2 answers
806 views

Does the minimum of short-run average cost equal the minimum of long-run average cost in the long run for perfect competition?

I was recently reading this resource (http://www2.econ.iastate.edu/classes/econ101/hallam/Comp_LongRun_HND.pdf) which states that in the long run for perfect competition, price is equal to both the ...
Christopher U's user avatar