modul 14 Flashcards
What is the long-run supply curve for a constant-cost industry?
A horizontal line
Why do output prices change less than production cost in the short run but change by the full amount in the long run under perfect competition?
In the short run, firms may have fixed contracts or limited ability to adjust prices, but in the long run, they can fully adjust prices to reflect changes in production costs.
Why do firms in a perfectly competitive industry earn zero economic profit in long-run equilibrium?
Because the market price is equal to the average total cost.
What happens to the costs of factors of production in a perfectly competitive industry when there is expansion or contraction?
Expansion leads to a decrease in the costs of factors of production, while contraction leads to an increase in the costs of factors of production
In a perfectly competitive industry, firms will earn ______ profit in the long run.
zero
What adjustments do firms make in response to changes in demand?
Exit in the long run and shifting the supply curve to the left
What factors can cause changes in demand?
Changes in preferences
What happens to industry output in response to changes in demand?
It remains the same
What causes an increase in market price and marginal revenue curves?
Changes in demand
What is the impact of changes in demand on industry output and economic profits?
Changes in demand lead to an increase in industry output and economic profits in the short run, but attract new firms and return economic profits to zero in the long-run equilibrium
In the short run, output prices change __ than production cost, but in the long run, they change by the ____ amount under perfect competition.
less, full
What is the difference between economic profit and accounting profit?
Economic profit includes both explicit and implicit costs, while accounting profit only includes explicit costs.
What are the three possible effects on the costs of factors of production that expansion or contraction of a perfectly competitive industry may have?
Expansion may increase costs, contraction may decrease costs, and no change in costs may occur.
What happens to the costs of factors of production in a perfectly competitive industry when there is expansion or contraction?
Expansion leads to a decrease in the costs of factors of production, while contraction leads to an increase in the costs of factors of production
What are the effects of expansion or contraction on the costs of factors of production in a perfectly competitive industry?
Expansion increases costs, while contraction decreases costs.
What is the impact of expansion or contraction on the costs of factors of production in a perfectly competitive industry?
Expansion increases the costs of factors of production, while contraction decreases the costs of factors of production.
What is the impact of a change in fixed cost on price and output in the short run and long run under perfect competition?
In the short run, a change in fixed cost will not affect price, but it may affect output. In the long run, a change in fixed cost will lead to adjustments in both price and output.
How do changes in production cost affect the ATC curve?
They shift the ATC curve
What adjustments do firms make in response to changes in demand?
Exit in the long run and shifting the supply curve to the left
What is long-run equilibrium in a perfectly competitive industry?
Long-run equilibrium in a perfectly competitive industry occurs when firms are earning zero economic profits and there is no incentive for firms to enter or exit the industry.
What adjustments do firms make in response to changes in demand in the long run?
They enter the industry
What happens to industry output and economic profits in long-run equilibrium?
Industry output increases and economic profits return to zero
How do changes in demand affect market price and marginal revenue curves?
They cause the market price to increase and the marginal revenue curves to shift right
Profits attract ______ in the long run, shifting the supply curve to the right.
entry
What happens to industry output in response to changes in demand?
It remains the same
What adjustments do firms make in response to changes in demand in the short run?
Firms increase their output
What causes changes in a firm’s costs?
Changes in production cost
The firm’s average total cost is slightly higher than its original level of $1.70 because of the ______ of the curve
U shape
What is the process that occurs in the long run when firms are making an economic profit?
Entry of new firms
What causes an increase in market price and marginal revenue curves?
Changes in demand
What is the impact of changes in demand on industry output and economic profits?
Changes in demand lead to an increase in industry output and economic profits in the short run, but attract new firms and return economic profits to zero in the long-run equilibrium
