by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is a Legal Monopoly? For some products, the government erects barriers to entry by prohibiting or limiting competition. Under U.S. law, no organization but the U.S. Postal Service is legally allowed to deliver first-class mail. Many states or cities have laws or...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is a Natural Monopoly? Economies of scale can combine with the size of the market to limit competition. This arises when the market has room for only one producer. If a second firm attempts to enter the market at a smaller size then its average costs will be...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Productive and Allocative Efficiency in Perfectly Competitive Markets? When profit-maximizing firms in perfectly competitive markets combine with utility-maximizing consumers, something remarkable happens: the resulting quantities of outputs of goods and...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Long-Run Equilibrium in a Perfectly Competitive Market? No perfectly competitive firm acting alone can affect the market price. However, the combination of many firms entering or exiting the market will affect overall supply in the market. In turn, a shift...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What Guides Decisions to Enter or Exit a Market in the Long Run? It is impossible to precisely define the line between the short run and the long run with a stopwatch, or even with a calendar. It varies according to the specific business. Therefore, the distinction...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What do Marginal Costs and the Supply Curve look like for a Perfectively Competitive Firm? For a perfectly competitive firm, the marginal cost curve is identical to the firm’s supply curve starting from the minimum point on the average variable cost curve. To...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How are Short-Run Decisions Based Upon Costs made in a Perfectly Competitive Market? The average cost and average variable cost curves divide the marginal cost curve into three segments. At the market price, which the perfectly competitive firm accepts as given, the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Does the Production Function Estimate Inputs? We’ve explained that a firm’s total costs depend on the quantities of inputs the firm uses to produce its output and the cost of those inputs to the firm. The firm’s production function tells us how much output the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Shutdown Point on The Cost Curve? Shutting down can reduce variable costs to zero, but in the short run, the firm has already paid for fixed costs. As a result, if the firm produces a quantity of zero, it would still make losses because it would still need...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Break Even Point on the Cost Curve? Again, the perfectly competitive firm will choose the level of output where Price = MR = MC. At this price and output level, where the marginal cost curve is crossing the average cost curve, the price the firm receives...
