CHAPTERS 10 and 11 NOTE TAKING ASSIGNMENT

1. Complete the table below on market structures

Pure Monopolistic Oligopoly Monopoly

Competition Competition
Number of Large number Many Few One
Firms
Type of Standardized Differentiated Standardized or Unique, no
product differentiated close substitute
Barriers to None Some, but Limited by Considerable
entry within limits mutual
interdependenc
e
Control over Very Easy Relatively easy Significant Blocked
price obstacles
Non-price None Emphasis on Typically, a Mostly public
Competition advertising, great deal relations
brand names, advertising
trademarks

2. Explain why the demand curve for the market is downward sloping but is horizontal or
completely elastic for an individual firm.
Companies cannot obtain the highest price through the restriction of their production but
neither do they need to decrease the price to increase sales, the industry can affect the
price by changing its production, this causes a downward curve.
3. Explain why an industry in pure competition will advertise but not an individual firm.
Industries in pure competition will need to advertise to draw the attention of the market
as opposed to the individual companies that are in the competitive market since it
cannot compete without price since it is based only on the rule of marginal income at
marginal cost.
4. Explain why the price in a purely competitive market is equal to the marginal revenue and
average revenue.
Since if the price is greater than the minimum average cost, the quantity of production of
the company where the marginal income is equal to the marginal cost in search of
increasing its profit or reducing its loss.
5. Complete the table below, given a market price of $10
Quantity Total Revenue Marginal Revenue Average Revenue
0 0 ********* ********
1 10 10 0
2 20 10 10
3 30 10 20

6. Give the decision rule to determine the optimal quantity a firm in pure competition should
produce.

There is a guide to profit maximization this is known as the rule MR equals MC.
In the short term the profits of the company will increase or minimize the losses by
producing in the same way the marginal income and the marginal cost.

7. Give the equation to compute a firm’s profit.

Profit= (Price- Average Total Cost) x Quantity of Output

8. Explain why firms making a zero economic profit will continue to stay in business.

Businesses may remain open if the average variable costs are less than the price but the
price must be less than the average total costs since revenues must exceed the variable
costs.
9. Explain when a firm will decide to shut down in the short run.

Firms will close if the average variable costs are greater than the price since the costs must
exceed the income.

10. Explain how to derive the short-run supply curve of the individual firm in pure competition
given the firm’s cost curves.

The firm's supply curve will be located on the marginal cost curve above the average variable
cost since profit maximization occurs where marginal revenue equals marginal cost.
Adding the company's supply curve horizontally will give us the result of the market supply.

11. Explain productive and allocative efficiency.

Productive efficiency is when companies have the capacity to produce at the lowest cost and
allocation efficiency is when marginal cost and price are equal.

12. Explain why firms in pure competition may earn short run economic profits or losses but will
earn normal profits in the long run.
 The companies of pure competition can obtain gains or losses in the short term since other
companies will be able to analyze that in this industry economic profits are generated
wanting to enter this industry.
The more product in the market, the lower the price will be, causing a decrease in profits,
however in the long term when companies are productive and efficient, they produce at a
lower cost where the marginal cost and the price will be the same, this will be achieved
through use of technologies which helps to reduce costs allowing to be competitive in the
market.

13. Explain the long run supply curve in an increasing cost industry and contrast that to a
decreasing cost industry.

Many of the industries have increasing costs so that as the amount of production increases,
costs also increase, as production falls, the price of inputs will decrease due to the decrease
in demand, but in an industry with decreasing costs, the curve Long-term supply side has a
downward slope as production increases can cause other new companies to enter, causing
production costs to fall.

14. Give one example of how the principles in this chapter currently impact your life or relate to
your chosen career.

These principles have helped me analyze the behaviors that I have when buying a product,
thinking about the ways of production and how my purchase of that product may or may not
affect the economy of that industry.