Chp 14 Flashcards
Many buyers/sellers, goods are identical, free entry and exit, no barriers to entry
Perfectly competitive markets
True or False: The actiona of a single buyer/seller have a negligible impact on the marlet price of a good/service. No single firm is powerful enough to control price.
True
Individuals who take the given market price are?
Price takers
Total Revenue (Linear)
Price times Quantity sold (P x Q);
Profit
Total Revenue minus Total Costs (TR - TC)
True or False: Total Costs must be higher than Total Revenue, otherwise losses occur
True
How much revenue a firm gains from each typical unit sold?
Average Revenue ( TR / Q )
Marginal Revenue
The change in revenue from an additional unit sold
The change in Total Revenue / The change in Quantity
True or False: Marginal Revenue equals Price in a perfectly competitive market ( MR = P )
True
True or False: Price = Average Revenue = Marginal Revenue
True
As long as Marginal Revenue is greater than Marginal Costs? ( MR > MC )
A firm should keep making that Quantity of product
If Marginal Revenue is less than Marginal Cost ( MR < MC ),
A firm should produce less product
When a firm maximizes profit, it sells Quantity at the point where
Marginal Revenue = Marginal Costs
True or False: In a perfectly competitive market, a firm produces where Price = Marginal Revenue = Marginal Cost ( P = MR = MC )
True
True or False: A firm’s supply curve is its Marginal Cost (MC) curve
True
Where a firm temporarily stops producing because of marlet conditions
Shutdown
Shutdown occurs where
Total Revenue < Total Variable Costs (TR < TVC) or Price < Average Variable Costs (P < AVC)
Sunk costs
Costs that have already been spent and cannot be recovered
Firm’s SR supply curve
The portion of the Marginal Cost (MC) curve that is above the minimum Average Variable Cost (AVC)
Shutdown Price
Where Price equals minimum Average Variable Cost (P = AVC)
Shutdown Price
P = AVC
A competitive firm’s demand curve is perfectly (elastic/inelastic)
Elastic
In a perfectly competitive market, for a firm;
Price equals Average Revenue equals Mariginal Revenue equals Demand
(P = AR = MR = D)
When Price > Average Total Cost,
Positive economic profit
When Price < Average Total Costs (P < ATC)
A firm starts making negative economic profit, or losses
Zero economic profit, or normal economic profit
When Price equals Average Total Cost (P = ATC)
Breakeven point
When a firm earns zero economic profit, or when Profit equals minimum Average Total Cost (P = ATC)
A firm exits an industry when
P < Minimum ATC
When will a firm enter an industry,
if P > minimum ATC
When there is no entry or exit in an industry because P = min ATC
Long run (LR) equilibrium
In LR equilibrium,
maximize profits (P = SR MC), have no entry or exits (P = min SR ATC), long run average costs are minimal (P = min LRAC).
Are firms producing at an efficient or inefficient level?
Efficient
The portion of the Marginal Cost curve that above the minimum Average Total Cost
A firm’s LR supply curve
Sum of the quantities supplied by individual firms in the market
Market supply
True or False: When demand increases, price increases and firms enter the market to take advantage of profits. This shifts demand curve up by the price increase and to the right by the new quantity being made
True
(P - ATC) Q = ?
Profit
True or False: In equilibrium, Qd = Qs
True
Is an industry in LR equilibrium if firms are making positive economic prices?
No, Price must be brought down to the minimum Average Total Cost for entry to stop and equilibrium to be achieved
