Pure Competition

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CHAPTER 23
Pure Competition

A. Short-Answer, Essays, and Problems

1. How does pure competition differ from other basic market models?

2. What are some examples of the four different market structures?

3. What are four characteristics of pure competition?

4. How would you describe the demand curve for the purely competitive firm? For the industry?

5. What is the difference between average, total, and marginal revenue? What is the shape of the total and marginal revenue curves for the individual competitive firm?

6. Why does price equal marginal revenue for the purely competitive firm? What is the relationship to the demand curve for the firm?

7. Below is a demand schedule facing an individual firm. Complete the table by computing average revenue, total revenue, and marginal revenue. Then answer the following two questions: (a) How can you tell whether a firm is operating in a market that is purely competitive? (b) What relationship exists between average revenue and marginal revenue?

Quantity Average Total Marginal Price demanded revenue revenue revenue $30 0 $_____ $_____ ––– 30 1 _____ _____ $_____ 30 2 _____ _____ _____ 30 3 _____ _____ _____ 30 4 _____ _____ _____ 30 5 _____ _____ _____ 30 6 _____ _____ _____

8. Explain the marginal revenue and marginal cost approach to profit maximization and use it to describe profit, loss, and shut down situations for the purely competitive firm.

9. What conditions are necessary to determine if the purely competitive firm should produce in the short run? State the marginal revenue and marginal cost conditions and the total revenue and total cost conditions.

10. What quantity should the purely competitive firm produce to maximize profits? Analyze from a total revenue and total cost perspective

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