ChapC16 - 1 How to Study for Chapter 16 Perfect Competition...

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1 How to Study for Chapter 16 Perfect Competition in the Short Run Chapter 16 introduces the four types of industries and the decision making process for companies in perfect competition. It is a technical chapter and needs to be studied slowly. 1. Begin by looking over the Objectives listed below. This will tell you the main points you should be looking for as you read the chapter. 2. New words or definitions and certain key points are highlighted in italics and in red color. Other key points are highlighted in bold type and in blue color. 3. You will be given an In Class Assignment and a Homework assignment to illustrate the main concepts of this chapter. 4. There are several new words in this chapter. Be sure to spend time on the various definitions. There are also many calculations. Go over each carefully. Be sure you understand how each number was derived (do the calculations for yourself). Then, plot the calculations on graph paper to see how the graphs are derived. Check your graphs against the ones in the text. The calculations of this chapter continue the same case from the calculations of the previous two chapters. 5. Go over the graphs very carefully. They are very important throughout the course. 6. When you have finished the text, the Test Your Understanding questions, and the assignments, go back to the Objectives. See if you can answer the questions without looking back at the text. If not, go back and re-read that part of the text. Then, take the Practice Quiz for Chapter 16. Objectives for Chapter 16 Perfect Competition in the Short Run At the end of chapter 16, you will be able to answer the following: 1. What are the characteristics of “perfect competition”? "pure monopoly" ? "monopolistic competition" ? “oligopoly”? “a cartel”? "a contestable market" ? 2. In perfect competition, what is the demand curve facing the seller ? Why? Draw the graph. 3. Define "marginal revenue" . 4. Using the procedures for rational decision-making, explain why a company that is a price taker will produce up to the quantity at which the marginal revenue equals the marginal cost . 5. What should a company do if the marginal revenue is greater than the marginal cost? Why? What should a company do if the marginal revenue is less than the marginal cost? Why? 6. On the graph , show the marginal revenue, marginal cost, and average total cost. Show the profit-maximizing quantity and the economic profit. 7. Explain the shutdown rule . That is, if a company is making economic losses, in the short- run, when should it continue to produce and when should it temporarily shut-down? Give some examples. 8. Explain why grocery stores and restaurants are open late at night, when there are few customers. 9. What is the supply curve of one seller ? (Remember: this is the curve which tells how much the seller will produce at any given price.) 10. From the supply curve of one seller, how does one derive the market supply curve ?
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