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When a market is dominated by a few large profitable firms it is considered to be a?
oligopoly
How does total cost relate to total in the market total cost relate to the production output?
In a perfectly competitive market, all n firms are equal. Thus, the market total cost is the total cost (TC) of one firm multiplied by the amount of n firms in the market Total Market Cost = n(TC) Total cost relates to output because firms want to make a profit. Profit = TR - TC where TR = total cost and TR = total revenue. Firms produce at the quantity which MR (marginal revenue) = MC (marginal cost). At this quantity, multiply it by n number of firms in the market to achieve the total output in a market.
Why can firms not always reduce prices until they increase sales and profits?
if marginal production costs exceed marginal revenues, the firm will suffer losses, not profits.
What are the two approaches of profit maximization under monopolistically competitive market in the short run?
In a monopolistically competitive market, firms can maximize profits in the short run through two primary approaches: adjusting output levels or setting prices. First, firms can increase production to the point where marginal cost equals marginal revenue (MC = MR), ensuring that they produce the optimal quantity for maximum profit. Alternatively, they can set prices above marginal cost to capture consumer surplus, maximizing profit per unit sold. Both strategies allow firms to leverage their market power while facing competition from similar products.
In a free market economy firms purchase from households?
In a free market economy, firms purchase factors of production such as labor, from households.
When a market is dominated by a few large profitable firms it is considered to be a?
oligopoly
How does total cost relate to total in the market total cost relate to the production output?
In a perfectly competitive market, all n firms are equal. Thus, the market total cost is the total cost (TC) of one firm multiplied by the amount of n firms in the market Total Market Cost = n(TC) Total cost relates to output because firms want to make a profit. Profit = TR - TC where TR = total cost and TR = total revenue. Firms produce at the quantity which MR (marginal revenue) = MC (marginal cost). At this quantity, multiply it by n number of firms in the market to achieve the total output in a market.
Why can firms not always reduce prices until they increase sales and profits?
if marginal production costs exceed marginal revenues, the firm will suffer losses, not profits.
In a free market economy firms purchase from households?
In a free market economy, firms purchase factors of production such as labor, from households.
Where do firms purchase inputs for production from households in?
Firms purchase inputs for production from households in the factor market. In this market, households provide factors of production, such as labor, land, and capital, in exchange for wages, rent, and profits. This exchange facilitates the production process, allowing firms to create goods and services. Households, in turn, use the income earned to purchase finished products from firms in the goods market.
Why does demand equal marginal revenue in perfect competition?
In perfect competition, demand equals marginal revenue because firms in this market structure are price takers, meaning they have no control over the price of their product. As a result, they must sell their goods at the market price, which is also their marginal revenue.
Are profitable firms necessarily efficient firms?
yes
Are monopolists price takers as are competitive firms?
No, monopolists are not price takers like competitive firms. In a competitive market, firms accept the market price as given and cannot influence it due to many competitors. In contrast, a monopolist has market power and can set prices above marginal cost, as they are the sole supplier of a good or service, allowing them to influence the market price.
Why is the equality of marginal revenue to marginal cost essential to profit maximuzation in all of the market structures?
When Marginal Cost is below Marginal Revenue, profit is increasing. When Marginal Cost is above Marginal Revenue, profit is decreasing. Since the goal of firms is to maximise profit, they should produce at a level where the MR of producing another unit is equal to the Marginal Cost of producing another unit. Firms should keep producing until this point because there is a hidden profit in MC. This is because we are not taking into account the Accounting profit.
What is the marginal physical product?
The resulting rate of change in a firms output as a result of employing one extra unit of a factor of production for example labour.
How does the law of increasing marginal cost impact the production decisions of firms?
The law of increasing marginal cost states that as a firm produces more units of a good, the cost of producing each additional unit increases. This impacts production decisions by causing firms to consider whether the additional cost of producing more units is worth the potential revenue they can generate from selling those units. Firms must weigh the increasing costs against the potential benefits to determine the optimal level of production.
How do perfectly competitive firms earn profit in the long run?
Perfectly competitive firms earn profit in the long run by producing goods and services at the lowest possible cost and selling them at a price determined by market forces. In the long run, firms can adjust their production levels and costs to achieve equilibrium where price equals marginal cost, allowing them to earn normal profits.
