Micro Econ Exam Review

Characteristics of competitive marketplaces (3) There essential be many an(prenominal) buyers and sellers, none of whom buttocks sire a large market shargon, a few players cannot dominate the market. Firms must produce a standardized product, buyers must see all their products as equivalent. (Identical (Homogeneous) Products), Firms and resources are typically fully mobile, allowing empty exit and entry. These three conditions make all consumers and producers price- laborrs. Models Section 12. 2 securities industry Market Assumptions Firm The profligate is a profit maximising firm.The separate firm can sell all they can at the market price. Each Individual firm supplies only a small caboodle of market supply, and therefore cant manipulate the market price. The firm Is a price-taker they take the market price as given. 2. earnings Minimization The firm lead maximize profit at the output level that has the greatest inconsistency between Revenues + make up. The firm can/ pass on profit maximize where fringy Revenue (MR..) = Marginal Cost ( mac). Since the perfectly competitive firm is a price taker P=MR Therefore, the profit maximizing condition can be written MR..=MAC or FEM.. (SameCondition). If MR.. MAC then Increase Output. If MAC MR.. Then Decrease Output. Model Section 12. 3 Finding the Profit Maximizing Level of Output Model 1 OFF find oneself if the firm is generating stinting profits, economic losses, or Zero economic profits. poster represent curves include both implicit + explicit costs + can therefore be used to determine economic profits or losses. 4 Step Process 1 . Determine the profit maximizing level of output (where MR..=MAC). 2. Calculate total revenue = Price x total 3. Calculate total cost = TACT x Quantity (TACT is always U Shaped) 4. Compare TRY + ETCIf TRY ETC then Con. wage If ETC TRY then Con. Losses If TRY = ETC then Zero Con. lucre 5. Models on next page. Section 12. 4 scotch Profits Economic Loss Zero Econom ic Profits Economic Profits firm is generating enough revenue to cover accounting cost + opposing cost of resources employed. (Covering both explicit + implicit costs) Indicates an efficient parceling of scarce economic resources. Economic Losses firm may be covering act. Cost but they are not covering the pop. Cost of resources employed. Indicates an inefficient allocation of scarce economic resources. Long Run Analysis If existing firms are generating economic profits it will result in outside firms/ resources to sneak in the market. Models below Section 12. 5 Individual Firm Individual firms will continue to enter the market until all economic profits have been competed away. In long-run equilibrium all firms will be left hand generating zero profit. If existing firms are generating Con. Loss Left with 2 options 1. take place operating 2. Shut down (temporarily stop producing) If the firm is at least(prenominal) covering bag. Variable cost (PVC) they would be best off to