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Cost Theory

Perfect Competition in the Long Run

In the long run, we assume that all Factors of Production are variable, which means that the entrepreneur can adjust plant size or increase their output to achieve maximum profit. Perfect Competition Long Run equilibrium results in all firms receiving normal profits or zero economic profits.Perfect Competition Long Run Factor MobilityThe…
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Monopolistic Competition Market Structure

In Monopolistic Competition, there are many small firms who all have minimal shares of the market. Firms have many competitors, but each one sells a slightly different product. Firms are neither price takers (perfect competition) nor price makers (monopolies).Example of Monopolistic Competition The athletic shoe market:When you walk into…
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Oligopoly Market Structure

In an Oligopoly market structure, there are a few interdependent firms dominate the market. They are likely to change their prices according to their competitors. For example, if Coca-Cola changes their price, Pepsi is also likely to.Examples of Oligopolies In the wireless cell phone service industry, the providers that tend to dominate the…
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Theory of Production: Cost Theory

In the Cost Theory, there are two types of costs associated with production - Fixed Costs and Variable Costs. In the short-run, at least one factor of production is fixed, so firms face both fixed and variable costs. The shape of the cost curves in the short run reflect the law of diminishing returns.Cost Theory - Types of CostsA.…
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Perfect Competition Short Run

Perfect Competition or Pure Competition (PC) is a type of market structure, which doesn't actually exist and is considered to be theoretical. We will look at Perfect Competition Short Run and then in the next post, the Perfect Competition in the long run.Characteristics of Perfect Competition1. Number of Firms There are very many small…
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Free Market: Advantages & Disadvantages

A free market economy is a type of economy promotes the production and sale of goods and services, with little to no control or involvement from any central government agency. In a free market economy, firms and households act in self-interest to determine how resources get allocated, what goods get produced and who buys the goods. A free market…
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