Strictly speaking, pure competition is relatively rare. then why do we study it?

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Chapter8: Pure Competition in the Short Run

1. Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most accurately fit? (a) a supermarket in your hometown; (b) the steel industry; (c) a Kansas wheat farm; (d) the commercial bank in which you or your family has an account; (e) the automobile industry. In each case, justify your classification. LO1

2. Strictly speaking, pure competition is relatively rare. Then why study it? LO2

3. Use the demand schedule to the right to determine total revenue and marginal revenue for each possible level of sales: LO2

   1. What can you conclude about the structure of the industry in which this firm is operating? Explain.

      
      
      (K)

   2. Graph the demand, total-revenue, and marginal-revenue curves for this firm.

   3. Why do the demand and marginal-revenue curves coincide?

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   4. “Marginal revenue is the change in total revenue associated with additional units of output.” Explain verbally and graphically, using the data in the table.

4. “Even if a firm is losing money, it may be better to stay in business in the short run.” Is this statement ever true? Under what condition(s)? LO3

5. Consider a firm that has no fixed costs and which is currently losing money. Are there any situations in which it would want to stay open for business in the short run? If a firm has no fixed costs, is it sensible to speak of the firm distinguishing between the short run and the long run? LO3

6. Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures? Explain why price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive. LO3

7. “That segment of a competitive firm's marginal-cost curve that lies above its average-variable-cost curve constitutes the short-run supply curve for the firm.” Explain using a graph and words. LO4

8. LAST WORD If a firm's current revenues are less than its current variable costs, when should it shut down? If the firm decides to shut down, should we expect that decision to be final? Explain using an example that is not in the book.

Video Transcript

For the solution Step one. The statement, strictly speaking, pure competition is relatively rare, is true in the real world, but this market model is highly relevant to several industries. By studying the pure competition model, one can study the markets for agriculture, good face products, foreign exchange, basic metals and stock stairs. Now, the purely competitive economy provides a standard for evaluating the efficiency of the real world economy. This acts as a meaning staring point for the determination of price, and I'll put off any discussion above all. The pure competition model provides a standard or known for evaluating the economy. Real world. Therefore, the study of your competition is necessary. So this is the explanation and step by step and detail. Please go through.

Why is pure competition considered?

Which situation best describes pure competition?

How does pure competition differ from other basic market models?

Which characteristics would best be associated with pure competition?