chapter 9 Flashcards
1
Q
market structure
A
all features of a market that affect the behaviour and performance of firm
- number and size of sellers
- extent of knowledge about one another’s actions
- degree and freedom of entry
- degree of product differentiation
2
Q
market power
A
- when firms can influence price of products
3
Q
competitive market
A
- large number of sellers
- standardized product
- easy entry and exit
- price takers
4
Q
price taker
A
- firm produces as much or as little as they want at the given price
- price doesnt depend on quantity produced and sold
- can keep increasing output without it affecting market price
5
Q
demand curve for perfectly competitive market
A
horizontal demand curve even though industry demand curve is downward sloping
6
Q
total revenue
A
the total amout received by the firm from the sale of a product
TR = P x Q
7
Q
average revenue
A
AR = TR/Q
- amount received per unit sold
8
Q
marginal revenue
A
MR = delta TR/delta Q
- additional revenue received if it increases production by 1 unit
- MR = P
- each 1 unit increase in Q causes revenue to rise by P
9
Q
profit maximizing quantity
A
intersection of the price with MC curve
10
Q
MC and firm’s supply decision
A
- MR = MC at profit maximizing Q
- MR > MC increase Q to raise profit
- MR < MC reduce Q to raise profit
- if price rises then profit maximizing quantity also rises
- MC curve determines firm’s Q at any price
MC curve is supply curve
11
Q
zero economic profits
A
- firm just covering total costs
- P = ATC
12
Q
positive economic profits
A
- P > ATC (atc below)
- area between 0, Q, P, ATC rectangle
13
Q
negative economic profits
A
- P < ATC (atc above)
- area of rectangle between 0, Q, P, ATC
14
Q
should firm produce at all?
A
- if produces nothing: operating loss = to fixed cost
- if produce: add vairable cost
- if revenue < variable cost, firm will lose more by producing than not
15
Q
decision to produce
A
- shut down if TR < VC
- divide both sides by Q
- shut down if P < AVC
