Chapter 11 Flashcards
In a competitive market what happens when a firm prices its product above market price?
No one will buy it
What happens in a competitive market when a firm sets prices below market price?
Sell the same amount just less money because lower prices
At market price what is the demand for a firms product in a competitive market?
Perfectly elastic (horizontal)
Long run
Time after exit or entry has occurred (demand is more elastic in the long term)
Short run
Time before exit or entry can occur
Elements of a perfectly competitive market
- product sold is similar for all sellers
- many buyers and sellers
- or/ and many potential sellers
Maximize profit
Maximize difference between total revenue and total cost
Profit = total revenue - total cost
Total revenue
P x Q (prices times quantity)
Total cost
Cost of producing given quantity of output
Explicit cost
Requires money outlay (actual money physically is spent)
Implicit cost
Does not require money outlay (usually opportunity cost not actual money spent)
Economic profit
Total revenue - total cost including implicit costs
Accounting profit
Total revenue - explicit costs
Fixed costs
Costs that don’t vary with output (like rent no matter how many things u sell rent is the same u enter with a fixed cost)
Variable costs
Costs that vary with output (if you produce more oil you need more pumps more workers more drivers etc)
