Second Half Flashcards
An industry in which many suppliers, producing identical product, face many buyers, and no one participant can influence the market.
A perfectly competitive industry
The goal of competitive suppliers, maximizing the difference between revenues and costs.
Profit maximization
A period during which the number of firms and their pant sizes are fixed.
The short run
A sufficiently long period of time to permit entry and exit and for firms to change their plant size.
The long run
Corresponds to the minimum value of the AVC curve.
The shut-down price
Corresponds to the minimum of the ATC curve.
The break-even price
That portion of the MC curve above the minimum of the AVC.
The short-run supply curve
In perfect competition, this is the horizontal sum of all firms’ supply curves.
Industry supply (short run)
In perfect competition, this occurs when each firm maximizes profit by producing a quantity where P=MC.
Short run equilibrium
These are required to induce suppliers to supply their goods and services. They reflect opportunity costs and can therefore be considered as a type of cost component.
Normal profits
These are those profits above normal profits that induce firms to enter and industry. They are based on the opportunity cost of the resources used in production.
Economic (supernormal) profits
The difference between revenues and actual costs incurred.
Accounting profits
In a competitive industry, this requires a price equal to the minimum point of the firm’s ATC. At this point, only normal profits exist, and there is no incentive for firms to enter or exit.
A long-run equilibrium
