Perfect Competition Flashcards
1
Q
What does the purple box represent?
A
Economic Profit
because:
AR > AVC
AR > ATC
AR-ATC = Profit
2
Q
MWP = P * MP(L) = ?
A
VMP(L)
Value of the Marginal Product of Labor
3
Q
What does Profit = ?
A
TR - TC
= P*Q - TC
3
Q
F.O.C. for profit?
A
P * (dQ/dQ) - (dTC/dQ) = 0
=P - MC = 0
5
Q
Why shouldn’t this firm shut down?
A
Because AR > AVC even though ATC > AR
6
Q
Value of the Average Product of Labor = ?
A
VAP(L) = P * Q/L
= L * VAP(L)
= P * Q
= TR
7
Q
S.O.C. for profit?
A
8
Q
What is perfect competition?
A
Large # of buyers and sellers
Free entry and exit
Perfect Substitutes in products
Everyone is informed about everyone else
