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Today you are going to construct some Market Structure graphs with the knowledge you have
built over the past 3 weeks. On a piece of A-3 paper complete the following.
Panel 1:
Review:
Sketch the cost curves for ATC, AVC and MC
Sketch the revenue graphs for Price Taker identifying the profit max output using the MC - MR
approach.
Sketch the revenue graphs for Price Maker identifying the profit max output and price using the
MC - MR approach.
Define the following:
Supernormal profit - what is the relationship between price and ATC?
Zero-economic profit - what is the relationship between price and ATC?
Economic loss - what is the relationship between price and ATC?
Complete the sentence:
MC always intersects ATC and AVC at its _________________.
Panel 2:
Market Structure 1:
Assumptions:
1. Small number of large firms
2. All firms produce a homogenous product and accept the price the market sets.
3. Goal of firm is profit maximization
4. Firms can make Supernormal profit, zero-economic profit and economic loss in the short-run.
5. Firms will always make zero economic profit in the long run.
Panel 3:
Market Structure 2:
Assumptions:
1. There is a single seller or a dominant firm in the market
2. No close substitutes
3. Price makers
4. Goal of firm is profit maximization
5. Can make supernormal profit, zero-economic profit and economic loss in the long-run.