Final (Perfect Competition) Flashcards
perfect competition characteristics (4)
- Large number of sellers
- Standardized product
- Sellers are price takers
- Producers can easily enter or exit industry
price takers
sellers who accept the world price and have no ability to influence it. Can sell as much output as they choose to produce
standardized product
all are relatively identical (different sellers of roma tomatoes)
what three things are always equal in perfectly competitive markets
price = marginal revenue = average revenue
normal profit
the firm is doing just as well as it would have if it had chosen to use its resources in a different industry (p=ATC)
profit maximizing rule
MR=MC
how to tell between normal and economic profit
normal P = ATC
economic P > ATC
a firm should shut down in the short run if P __ ATC, and stay open if AVC ___P___ATC
close: P < ATC
open: AVC ≤ P < ATC
the supply curve for a perf. comp. firm is simply a portion of the ______ run _________ ______ curve
short run marginal cost curve
when a market is profitable and other firms join, the market supply curve shifts to the ______, causing prices to ____ and bring in _________ profit
right
fall
normal
where do perf. comp. firms reach productive efficiency?
where production takes place at minimum ATC and firms charge an equal price
why do perfectly competitive firms achieve allocative efficiency?
because the sum of consumer surplus and producer surplus is maximized at the market clearing price
long-run supply curve is perfectly elastic/inelastic in a constant cost industry
elastic
