7 votes

Long Term Economic Profit for Perfectly Competitive market

To elaborate a bit on the answer by user 1muflon1, in economics the word "profit" is the surplus accrued to the firm after we have subtracted from revenues all compensation of production ...
Alecos Papadopoulos's user avatar
7 votes

Long Term Economic Profit for Perfectly Competitive market

This is because we are talking about economic profit not accounting profit. An economic profit takes into account opportunity cost. If you are skilled programmer that can earn $\\\$100000$ per year ...
1muflon1's user avatar
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Why does a firm make profit in a perfect competition market

Given your parameters there should be profit. There can be profit even in perfect competition if there is less than infinite firms since as pointed out by Bayesian in his +1 comment when price is ...
1muflon1's user avatar
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5 votes

Why does a firm make profit in a perfect competition market

The first order condition for profits here (with respect to quantity, since firms are price-takers) is $$p - 4q_i = 0 \implies q_i^* = \frac 1 4 p,$$ which is the supply function of its firm. So ...
Alecos Papadopoulos's user avatar
5 votes

Violation of the zero-profit condition

Essentially, from a teaching point of view, the reason perfect competition is given in your question is because you can assume p=MR, i.e the firm is a price taker. As more firms enter the market the ...
BB King's user avatar
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4 votes

Violation of the zero-profit condition

Zero profit condition only holds if free entry and long-run equilibrium state are also assumed (and even then it only holds for the marginal entrant). Here the profits being positive means that $p=8$ ...
Giskard's user avatar
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Perfect competition allocations

It looks like your question is implying all the firms are identical, so they have the same production function. Then each firm must provide the same amount, because they are the same internally (in ...
BB King's user avatar
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Uniform price vs. pay-as-bid auctions in energy markets

I believe "Auctions of Homogeneous Goods: A Case for Pay-as-Bid" by Pycia and Woodward answers your questions theoretically. This is quite recent and their results are striking. They also ...
Bayesian's user avatar
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Does the minimum of short-run average cost equal the minimum of long-run average cost in the long run for perfect competition?

So to understand why the long run average cost curve and short run average cost curve have the same minimum in perfect competition, as well as some of the other stuff you ask, you have to understand ...
Kitsune Cavalry's user avatar
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Aren’t all firms price-takers?

No, not all firms are price takers. You seem to be confused about demand firm faces for its product and market demand. On a perfectly competitive market price will be determined by market demand and ...
1muflon1's user avatar
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Finding Quantity when Profit = 0

Since $$TC(Q)=VC(Q)+FC$$ we have $$MC(Q)=TC'(Q)=VC'(Q)$$ To get $VC$, just find the antiderivative of $MC$ which is zero when $Q=0$. (Alternatively, to get $TC$ find the antiderivative of $MC$ which ...
smcc's user avatar
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How does perfect competition work?

I can understand that this can be confusing. A better way to re-state those two statements is: In a competitive environment, No individual firm believes that it can influence the market price. ...
Amit's user avatar
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2 votes

How does perfect competition work?

Answer to 1 The example you provide has only few firms. In perfectly competitive market there are infinite amount of firms so you can't simply use simple table to visualize that since your table lacks ...
1muflon1's user avatar
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Microeconomics question

Your first answer would be correct conceptually if this was an interior solution. (The math is incorrect because 2*0.9=1.8 and not 0.18). However, note that the price falls below the average variable ...
Maarten Punt's user avatar
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How can an individual firm sell ANY quantity for the market price under perfect competition?

The textbook model assumes that an individual firm could sell any quantity at the market price, but of course it will only sell the quantity which maximizes its profit. (Graphically speaking, while ...
VARulle's user avatar
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Why is the competitive equilibrium price not well defined in this question?

Solution: Your approach is right but it wont work in this situation as there are certain avoidable fixed costs associated with your cost function. we are given the demand function as, $p^d(q)=100-q$ (...
SGP's user avatar
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No difference in profits between quantity where MR>MC and quantity where MR=MC

So, how is it possible to have the same profit both at 70 and 80 units? It is possible to have the same profit at different level's of output. Profit is given by: $$\Pi = PQ - TC(Q)$$ Where $P$ is a ...
1muflon1's user avatar
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1 vote

No difference in profits between quantity where MR>MC and quantity where MR=MC

The $MR(q) = MC(q)$ optimality condition is only necessary when certain mathematical conditions are met: The decision variable $q$'s range has to be positive real numbers, not just integers, and also ...
Giskard's user avatar
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Does profit maximization imply cost minimization in both pure competition and monopoly?

Is the current production level reached at minimum cost? If not, reach it by lower cost. Revenue is unchanged, hence profit increases, thus it was not maximized.
Giskard's user avatar
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Industry supply and short-run cost function

Answer to 1 In perfect competition all firms are identical by assumption so you can say that total supply is sum of all individual supplies or: $$Q_S=\sum{q_i}=nq$$ The last equality holds because all ...
WilliamT's user avatar
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Why can't an individual producer influence market price in perfect competition?

Important assumption in perfect competition is that the number of firm is very large. In fact in many IO models you get perfect competition when number of firms goes to infinity. If the number of ...
1muflon1's user avatar
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1 vote

Why can't an individual producer influence market price in perfect competition?

It is just an assumption of the model that firms behave as price takers, i.e. as if they have no effect on price. Each firm is assumed to act as if they can sell as much as they like at any given ...
smcc's user avatar
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1 vote
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In a perfectly competitive market, how are the market demands taken into consideration?

No, market demand is in there. The assumption of perfectly competitive market is that firm is a price taker. Consequently market demand is perfectly elastic so the inverse demand function that ...
1muflon1's user avatar
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Duopoly Paradox

However, the reason this is irksome to me is not that it fails to match empirical observations, but that it seems to fail more fundamentally. We generally expect price and quantity to correlate ...
1muflon1's user avatar
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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? No, you can verify it yourself mathematically. In perfect competition firms ...
1muflon1's user avatar
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Why is the number of firms in the short run fixed?

Because by definition of short-run it is not possible. In economics, short-run is defined as a period when (some) factors/variables are fixed and not flexible. Consequently, by definition firm cannot ...
1muflon1's user avatar
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1 vote

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

There could be many answers, but the one that comes to my mind immediately is product differentiation. If you're selling exactly the same thing as everyone else, buyers are going to flock to the ...
Slopezian's user avatar
1 vote

Long Term Economic Profit for Perfectly Competitive market

Investopedia has this definition: Economic profit = revenues - explicit costs - opportunity costs where opportunity costs must be either zero or positive based on management evaluation of at least ...
SystemTheory's user avatar
1 vote

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

Look at it this way : There are two timeframes in which firms make decisions - Short Run and Long Run. The actual time that these "Runs" include vary from Industry to Industry. For example, for a ...
Poorvi's user avatar
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