Chapter 11: Flashcards
In a competitive market producers are (blank)
price takers.
- the firm accepts the price that is determined by the market.
The demand for one firms product is said to be ?
perfectly elastic.
When is an industry competitve?
When a firm doesn’t have much influence over the price of their product.
What is the long run?
the time after all exit or entry has occurred.
What is the short run?
The time period before exit or entry can occur.
You are considered dumb as a producer if you set your price in what way?
above or below the market price.
What is a sunk cost?
It is a cost that cannot be recovered. (they are never relevant because they cannot be changed by any choice.)
What is a fixed cost?
They are costs that don’t vary with output.
-
In a long or short run, when can a fixed cost by changed ?
in the long run.
What are variable costs?
costs that do vary with output.
What are explicit costs?
A costs that requires a money outlay
What are implicit costs?
a costs that requires no money outlay; opportunity costs.
What is the difference between accounting profit and economic profit?
accounting: TR- explicit costs
Economic profit = TR - TC (including implicit costs)
What is the equation for profit?
Total revenue - total costs
What is the equation to calculate total revenue?
price x quantity.
Total costs include?
fixed and variable cost.
What is maximum profit = to? it isn’t an equation it is a point in the table?
It is the point where total cost and revenue are the same
What is the equation for marginal revenue?
Total revenue / Quantity
On a supply and demand graph, the maximum profit is located?
World market price intersects with the marginal cost curve.
What is the average cost of production equation?
AC= Total cost / Q (units)
What is the equation for profit that includes AC?
Profit = (P - AC) x Q
Where is AC maximized on a graph?
Find the point where world market price intersects with the marginal cost curve.
- then move up or down and find where it aligns with the AC cost curve.
Any price below the minimum on AC curve and above the MC curve = ?
LOSS.
In what scenario will MR=MC not always make a profit?
If the average cost is greater than price, the firm will have a loss.
When :
p = ac?
P > AC?
P < AC?
- 1.) no incentive to join or exit the industry
2. ) firms will enter
3. ) firms will exit.
The firm will leave if (BLANK) is the case?
TR < VC
IF Price is below (average variable cost) AVC ?
the firm should shut down immediately.
Increasing cost industry?
An industry in which industry costs increase with greater output; shown with an upward-sloped supply curve.
( basically increasing costs of labor increase the intersection point of AC and MC)
Constant cost industry
an industry in which industry costs do not change with greater output; flat supply curve.
Decreasing cost industry?
an industry in which industry costs decrease with greater output; shown with a downward sloped supply curve.
