Competitive Market

Front

What are the assumptions of the competitive market model?

Back

Many buyers and sellers, homogeneous products, perfect information for all participants, no barriers to entry or exit, firms are price takers.

Front

What is the relationship between marginal revenue (MR) and price in a competitive market?

Back

Marginal revenue (MR) is constant and equal to the price.

Front

How is average revenue (AR) defined in a competitive market?

Back

Average revenue (AR) equals the price.

Front

Where do firms maximize profit in the short run?

Back

Firms maximize profit where marginal cost (MC) equals marginal revenue (MR).

Front

What types of profits can firms earn in the short run?

Back

Firms may earn abnormal profits, normal profits, or losses.

Front

What happens in the long run regarding firms in a competitive market?

Back

In the long run, firms enter or exit the market until economic profits are zero.

Front

What occurs at long-run equilibrium in a competitive market?

Back

Long-run equilibrium occurs where price equals minimum average cost (AC).

Front

What is allocative efficiency in a competitive market?

Back

This happens when resources (like money and labor) are used in the best way possible to produce the goods and services people want. Allocative efficiency occurs when price equals marginal cost (P = MC).

Front

What is productive efficiency in a competitive market?

Back

• This means producing things at the lowest possible cost, using the least amount of resources.

  It's achieved when a company makes a product in the most cost-effective way, without wasting resources. Productive efficiency occurs when firms produce at the lowest point of average cost (AC).

Front

What is dynamic efficiency in a competitive market?

Back

• This is about being able to improve and innovate over time.

• It happens when companies or markets keep changing, getting better, and finding new ways to improve products or make things cheaper. Dynamic efficiency is achieved through innovation and cost reduction.