How does pure competition differ from other basic market models?

The other basic market models are pure monopoly, oligopoly, and monopolistic competition. These market models differ from each other on the basis of: (1) ___________________ ; (2) the type of product; (3) control over price; (4) ________________ ; and (5) nonprice competition.

( ___________________ ) is a market structure with a large number of independent firms selling a ( standardized, differentiated ) product. The individual firms are " price ____________" and have no control over price because they must accept the market price for the product. Nonprice competition is not present because firms are selling a (homogeneous, heterogeneous) product at the market price. The conditions of entry into (or exit from) this industry are easy.

( _____________________ ) is just the opposite of pure competition in many ways. First, there is only one firm, not many individual firms. Second, the firm produces a unique product for which there are ( no, some ) close substitutes, not a standardized product that can be produced by many firms. Third, the firm has considerable control over price, and operates as a "price __________ " rather than a "price taker." Fourth, there are extensive barriers to entry into the industry and some degree of nonprice competition such as ___________________________.

( _________________ ) is more similar to pure monopoly in its operation and therefore differs markedly from pure competition. Under this, there are a few large firms that dominate an industry rather than a large number of relatively small firms. The firms can produce a standardized or a differentiated product rather than just a standardized product. Oligopolistic firms have some degree of price making power, although it is limited by the mutual interdependence in the industry. The entry obstacles are high and nonprice competition is present with oligopolies producing (differentiated, undifferentiated) products.

( __________________________ ) is the market structure that is closest to pure competition, although it differs from pure competition in several respects. Under this, competitors sell ( standardized, differentiated ) products, and therefore use ( price, nonprice ) competition along with some limited price competition to sell products. There are many monopolistically competitive firms, in part because entry conditions tend to be relatively easy, but the number of firms is substantially less than the thousands found in pure competition where the entry conditions are easier.

Now find a correct market model (or structure) for each questions below:

A one-firm industry is known as___________________.

Economists would describe the U.S. automobile industry as _______________.

Agriculture is the most close approximate of _________________.

An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of _____________________.

How would you describe the demand curve for the purely competitive firm? For the industry?

The demand curve for the individual competitive firm is ( perfectly elastic, inelastic) . The firm can sell all the output it can produce at the competitive market price because each firm accounts for only a negligible share of the market. There is no reason for the firm to lower price to sell more, nor can the firm obtain a higher price by restricting output. But, market or industry demand curve is (vertical, upsloping, downsloping ). Consumers will only purchase greater output for the entire industry at a lower price, but less output can be sold to consumers at a higher price.

Why can't an individual firm raise its price by reducing output or lower its price to increase sales volume in a purely competitive market?

One of the key reasons that an individual firm can't raise prices or decrease prices to increase sales volume is the fact that firms in a purely competitive market are "price ____________". This occurs due to the large numbers of firms in the market. As a result, individual firms face (perfectly elastic, inelastic) demand. This means that a firm can produce as little or as much as it wants and still receive the same price. Thus, the firm ( can, cannot ) raise prices by restricting output or lower prices to sell a greater level of output.

What is the difference between average, total, and marginal revenue? What is the shape of the total and marginal revenue curves for the individual competitive firm?

( ___________________ ) is the amount of money the firm receives per unit of sale. ( ________________ ) is the market price times the quantity that the firm can sell. ( _________________ ) is the change in total revenue from selling one more unit of output. The marginal revenue (MR) curve for the individual competitive firm is a ( vertical, horizontal ) straight line because there is a constant change in total revenue from selling one more unit of output. The total revenue (TR) curve is a(n) ( downsloping, upsloping ) straight line. Market price is constant and multiplied by an increasing amount of quantity sold.

Why does price equal marginal revenue for the purely competitive firm? What is the relationship to the demand curve for the firm?

The purely competitive firm is a "price-taker" in the market. The price it receives for its output is constant and does not vary across its range of output. ________ _________ is defined as the change in total revenue from selling one more unit of output. One more unit of output will be sold at a constant, market-determined price. Thus, price will be (greater than, equal to, less than) the marginal revenue (MR) for the firm. Also, the firm's demand curve will be perfectly elastic because no matter how much or how little the firm produces it will receive the same price per unit of output. So, demand (greater than, equal to, less than) price and marginal revenue (MR).

a) The Phillips curve is II: = it? + (m + z) amt -- Rewrite this relation as a relation between the deviation of the unemployment rate from the natural rate, ination, and expected ination. Now, suppose that the Phillips curve is given by: it, it? = 0.1 Zut, where Hf = nt_1 Assume ination in year t-l is zero. In year t, the central bank decides to keep the unemployed rate at 4% forever b) compute the rate of ination for years t, t+1, t+2, t+3 (please arrange in a table) 0) If half the workers have indexed their labor contracts, what is the new question for the Phillips curve? d) Based on your result in part (c), please compute new rates for years t, t+1, t+2, t+3 (please arrange in a table) e) How can you explain the effect of wage indexation on the relation between 11' and u? PART I-70 MARKS (2 MARKS PER QUESTION) Questions 1 - Question 2: A closed economy consumes four goods only. The following table shows the prices and the quantities exchanged in 2015 and 2016. The year of 2015 is the base year. 2015 2016 Goods Price Quantity exchanged Price Quantity exchanged $5.5 $6 10 $3 $2.5 6 AWNH $4 $4 4 $3 $2 7 Additional information: . Households purchased 60% of good 1, and the remaining shares of good I were split equally between firms and government. Firms purchased 20% of good 2 exchanged, and the remaining was purchased by households. . The consumption of good 3 was equally split among households, government, and firms. Government purchased 30% of good 4 and the remaining was bought by firms. Question 1 Suppose inflation rate is measured by the percentage change in GDP deflator. What was the inflation rate in 2016? Show your work and keep your answer to 2 decimal places if needed.Question 2: Suppose that a monopolist can produce any level of output it wishes at a constant marginal (and average} cost of $5 per unit. Assume that the monopoly sells its goods in two different markets that are separated by some distance. The demand curve in the rst market is given by Q1 = 60 P1, and the demand curve in the second {casket is given by, Q2= 100 2P2, {a} (b)- {c} {d} If the monopolist can maintain the separation between the two markets, what level of output should he produced in each market, and what price will be charged in each market? What are total prots in this situation? How would your answer change with respect to the output sold in each market, price charged, and total prots, if transportation costs were zero and the rm was forced to follow a single-price policy? Suppose the rm adopted a w pricing policy where each market as a whole must pay an equal entiy fee for the right to boy from the monopolist (equal to the smallest consmuer surplus in the two markets). In addition the customers in each market must pay a price per unit sold equal to marginal cost. In this case what would be the entry fee, how much would he sold in the two markets, and what are total prots of the monopolist? Suppose the rm adopted a M pricing policy where each market as a whole must pay an equal entry fee for the right to buy from the monopolist (equal to the smallest consumer surplus in the two markets). In addition the customers in each market must pay a price per unit sold and the monopolist designs an \"optimal\" two part tari' where the price is set as to maximize its prots. In this case what would he the entiy fee, what would be the \"optima \" price charged, and how much would be sold in the two markets, and what are total prots of the monopolist