Perfectly Competitive Markets & Costs Flashcards
What is Marginal Product of Labor
The additional output a firm produces due to hiring another worker
Where is Profit Max.
When MR=MC
When does a firm shut down
P<ATC
When will a perfectly competitive market be profitable
If the price at Profit Max. is above ATC
Why should a market have Profit Max. above ATC
It’s above the shutdown point and it will be making more than the average total cost
To Max profits a firm should produce until….
Why?
MC=P
Because MC=MR=P
What defines Long Run perfectly competitive markets
Why?
They make zero economic profits
Because they are producing the same product at the same price so they can’t earn more or less
Write down the Formulas
The supply curve of a perfectly competitive market is…
The marginal cost curve ONLY if Price exceeds AVC
What is the difference between BONDS and STOCKS
Bonds- A promise of repayment
Stocks- Partial ownership
Characteristics of Sole Proprietorship
-Have UNLIMITED liability
-A firm that is usually small
Principle Agent Problem
Interest of the PRINCIPLE does not align with the interest of the AGENT
Implicit Costs
Give Ex.
Using resources already owned by the firm
Forgone rent payments
Forgone amount earnings
Paid time off
Employee training
Forgone salaries
Explicit Costs
Give Ex.
Out of pocket costs
Wages
Rent
Materials
Draw out types of Goods chart
