Microeconomics

Table of Contents

1. Topic pack - Microeconomics - introduction
2. 1.1 Competitive Markets: Demand and Supply
3. 1.1 Competitive Markets: Demand and Supply - notes
4. 1.1 Competitive markets - questions
5. 1.1 Competitive markets - simulations and activities
6. 1.2 Elasticities
7. 1.2 Elasticities - notes
8. Section 1.2 Elasticities - questions
9. Section 1.2 Elasticities - simulations and activities
10. 1.3 Government intervention
11. 1.3 Government Intervention - notes
12. 1.3 Government intervention - questions
13. 1.3 Government intervention - simulations and activities
14. 1.4 Market failure
15. 1.4 Market failure - notes
16. Section 1.4 Market failure - questions
17. Section 1.4 Market failure - simulations and activities
18. 1.5 Theory of the firm
19. 1.5 Theory of the firm - notes (HL only)
20. Section 1.5 Theory of the firm - questions
21. Section 1.5 Theory of the firm - simulations and activities
    1. DragIT - fixed cost curve
    2. DragIT - variable cost curve
    3. DragIT -cost curves
    4. Step-by-step - Short-run total cost curve
    5. DragIT -revenue curve
    6. DragIT - Revenue curves (1)
    7. DragIT - Revenue curves (2)
    8. PlotIT - Profit maximisation
    9. DragIT - Perfect competition
    10. Step-by-step - perfect competition, short-run supernormal profit
    11. Step-by-step - perfect competition, short-run losses
    12. Step-by-step - perfect competition, firm and industry
    13. DragIT - Monopoly (1)
    14. DragIT - Monopoly (2)
    15. Step-by-step - monopoly
    16. DragIT - Welfare loss under monopoly
    17. Step-by-step - monopolistic competition, short-run
    18. Step-by-step - monopolistic competition, short-run
22. Print View

DragIT - Perfect competition

It should now be clear that the amount of profit or loss that the firm makes will depend on the market price.

In the diagram below drag the price up and down to see the impact of these price changes. Note that the vertical dotted line represents the profit-maximising or loss-minimising output, where MC = MR.

1

Perfect competition - equilibrium When the firm in perfect competition is making supernormal profits, they are in long-run equilibrium. a) True b) False Yes, that's correct. The statement is false. If supernormal profits are being made in perfect competition, this will attract new firms into the industry until the supernormal profits are competed away. In long-run equilibrium in perfect competition, there will therefore be just normal profits.No, that's not right. The statement is false. If supernormal profits are being made in perfect competition, this will attract new firms into the industry until the supernormal profits are competed away. In long-run equilibrium in perfect competition, there will therefore be just normal profits.Your answer has been saved.

2

Perfect competition - shut-down point If the price falls below the level of AVC the firm in perfect competition will cease production. a) True b) False Yes, that's correct. The statement is true. A firm in perfect competition will cease production when price falls below average variable cost as they will make less of a loss if they cease production and pay just their fixed costs.No, that's not right. The statement is true. A firm in perfect competition will cease production when price falls below average variable cost as they will make less of a loss if they cease production and pay just their fixed costs.Your answer has been saved.