Chapter 13 Flashcards
What is a perfectly competitive market?
A perfectly competitive market is a market in which economic forces operate unimpeded
What 3 conditions must be met for a competitive market?
Both buyers and sellers are price takers
There are no barriers to entry
Firms’ products are identical
what is a price taker?
a price taker is a firm or individual who takes the price determined by market supply and demand as given
What is a berries to entry?
barriers to entry are social, political, or economic impediments that prevent firms from entering a market
What is a profit?
the difference between total cost and total revenue
What is a marginal revenue?
is the change in total revenue associated with a change in quantity
What is the marginal cost?
is the change in total cost associated with a change in quantity
LEVEL OF OUTPUT
MC= MR
If MR > MC,
a firm can increase profit by increasing output
If MR < MC,
a firm can increase profit by decreasing its output
What is the shutdown point?
The shutdown point is the point below which the firm will be better off if it shuts down than it will if it stays in business
What do profits create?
Profits create incentives for new firms to enter, market supply will increase, and the price will fall until zero profits are made
What is a normal profit?
Normal profit is the amount the owners would have received in their next best alternative
