chapter 7 Flashcards
Total revenue for a firm
is the selling price times the quantity sold.
Average revenue
tells us how much revenue a firm receives for the typical unit sold. Average revenue is total revenue divided by the quantity sold.
Marginal revenue
is the change in total revenue from an additional unit sold
The goal of a competitive firm
is to maximize profit. The firm will want to produce the quantity that maximizes the difference between total revenue and total cost
Profit is equal to
total revenue minus total cost:
π = TR − TC
Normal profit:
The minimum amount required to keep factors of production in
their current use.
Abnormal profit:
The profit over and above normal profit.
If firms are making abnormal profit, then there is an incentive for other firms to enter the market.
A shutdown
refers to a short-run decision not to produce anything during a specific period of time because of current market conditions.
Exit
refers to a long-run decision to leave the market.
The firm shuts down if
the revenue it gets from producing is less than the variable cost of production.
The shutdown point
is the price and quantity at which a firm is indifferent between producing the profit-maximizing quantity and shutting down.
the competitive firm’s short-run supply curve.
The portion of the marginal cost curve that lies above average variable cost.
the competitive firm’s supply curve
Because the MC curve shows the quantity of the good that a firm is willing to supply at any price.
In long-run equilibrium,
firms break even because firms can enter or exit the market.
The competitive firm’s long-run supply curve
is the portion of the marginal
cost curve that lies above the average total cost.
