Microeconomics – 5. Perfect Competition

  1. To what does industry structure refer? What are the major types of industry structures?
  2. What is the central concept driving the structure-conduct-performance paradigm?
  3. Identify several types of market conduct.
  4. How is market performance measured?
  5. What is the most important requirement of perfect competition?
  6. Illustrate the price taker concept.
  7. Define marginal revenue.
  8. What is the relationship between the industry market price and the firm’s marginal revenue in a perfectly competitive industry?
  9. Define a homogenous product.
  10. What does free entry and exit mean? Why is this assumption important?
  11. What does perfect or complete information mean? What does this assumption ensure?
  12. Explain the externalities problem.
  13. Explain the public goods problem.
  14. Why is the market failure concept so important?
  15. Given a market structure of perfect competition, what kind of conduct with respect to pricing can we expect? What is the profit-maximizing rule?
  16. If the profit-maximizing firm always sets its output at a level where marginal cost equals marginal revenue, then what must be true about the firm’s supply curve?
  17. Explain the shutdown condition or shutdown rule.
  18. Illustrate long run equilibrium for the competitive firm. What does price equal and how much economic profits does it earn?
  19. What is the difference between accounting and economic profits?
  20. What is the relationship between price and average total cost in the long run equilibrium?
  21. What is the difference between allocative and productive efficiency?
  22. Explain Pareto Optimality.
  23. Illustrate consumer and producer surplus and the dead weight loss.
  24. A perfectly competitive market yields the most efficient use and allocation of resources, as embodied in productive and allocative efficiency. Yet still, there are several problems. Describe two.
  25. What is the difference between positive versus normative analysis?

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