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1. Discuss the characteristics of a perfectly competitive market? Give 2 examples of perfectly competitive markets?
- Infinite buyers and sellers * Zero entry and exit barriers * Perfect factor mobility Perfect information * Zero transaction costs * Profit maximization * Homogeneous products * Non-increasing returns to scale
Eg: Fish market and the vegetable or fruit vendors who sell at the same place, the bars in "Le Carré" (Liège, Belgium) or the "kebab street" near the Grand Place in Brussels.
2. Discuss the Firm’s Decisions in Perfect Competition markets
Firms decide how much to produce and what price to charge for the product. It depends on the competitive market, some products will face huge reduction from the customers and others may face slice reduction.
3) Identify the relationship between price and marginal revenue and explain why this relationship exists for a perfectly competitive firm The relationship between price and marginal revenue is proportional , that is as the price increases the revenue decreases and vice versa , In a perfectly competitive market this relationship exists for better and higher profits , for example: if two companies are selling washing machines , the first company sells 10 washing machines , each for $200 and the second company sells 10 for $210 , so most people will go to the first company since its cheaper and more beneficial for them , so the second company will aim to lower its prices.
4) A monopolist faces the following demand schedule.
Price | 10 | 9 | 8 | 7 | 6 | 5 | 4 | 3 | 2 | 1 | Quantity | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Revenue | 0 | 9 | 16 | 21 | 24 | 25 | 24 | 21 | 16 | 9 | MR | -- | 9 | 7 | 5 | 3 | 1 | -1 | -3 | -7 | | MC | -- | 1 | 2 | 2 | 3 | 3 | 3 | 3 | 4 | 5 |
(a) Fill in blank space (b) Compute the price that maximizes profit.
5) In a particular product market
- Infinite buyers and sellers * Zero entry and exit barriers * Perfect factor mobility Perfect information * Zero transaction costs * Profit maximization * Homogeneous products * Non-increasing returns to scale
Eg: Fish market and the vegetable or fruit vendors who sell at the same place, the bars in "Le Carré" (Liège, Belgium) or the "kebab street" near the Grand Place in Brussels.
2. Discuss the Firm’s Decisions in Perfect Competition markets
Firms decide how much to produce and what price to charge for the product. It depends on the competitive market, some products will face huge reduction from the customers and others may face slice reduction.
3) Identify the relationship between price and marginal revenue and explain why this relationship exists for a perfectly competitive firm The relationship between price and marginal revenue is proportional , that is as the price increases the revenue decreases and vice versa , In a perfectly competitive market this relationship exists for better and higher profits , for example: if two companies are selling washing machines , the first company sells 10 washing machines , each for $200 and the second company sells 10 for $210 , so most people will go to the first company since its cheaper and more beneficial for them , so the second company will aim to lower its prices.
4) A monopolist faces the following demand schedule.
Price | 10 | 9 | 8 | 7 | 6 | 5 | 4 | 3 | 2 | 1 | Quantity | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Revenue | 0 | 9 | 16 | 21 | 24 | 25 | 24 | 21 | 16 | 9 | MR | -- | 9 | 7 | 5 | 3 | 1 | -1 | -3 | -7 | | MC | -- | 1 | 2 | 2 | 3 | 3 | 3 | 3 | 4 | 5 |
(a) Fill in blank space (b) Compute the price that maximizes profit.
5) In a particular product market