Topic 8 - perfect competition and supply curve Flashcards
define perfect competition
All market participants, both consumers and producers, are price takers
what is the definition regarding consumer and producers when it comes to perfect competition
- There are many producers, each with a small market share
- Consumers regard the products of all producers as equivalent
- Most perfectly competitive industries are also characterized by free entry and exit
what does market share mean
the fraction of the total industry output accounted for by that producers output
what does it mean to be a price taker
buyers and producers actions have no effect on the price, so they must accept the price.
What does standardized product mean in this sentence “ The product is standardized across sellers”
consumers regard different sellers products as the same
how can we calculate total revenue
TR = P*q
how can we calculate profit
Profit = TR - TC
how do we calculate the marginal revenue
MR = ΔTR/Δq
Since the firm is a price-taker, MR equals the ______: the firm can sell as much as it likes at the current market price. Its marginal revenue curve is a horizontal line at the market price.
price
what is the optimal output rule
profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost. When MR = MC or P = MC
If TR > TC, then the firm is considered as profitable, breaks even, or incurs a loss
profitable
IF TR = TC, then the firm is considered as profitable, breaks even, or incurs a loss
breaks even
If TR < TC, then the firm is considered as profitable, breaks even, or incurs a loss
incurs a loss
If P > ATC, then the firm is considered as profitable, breaks even, or incurs a loss
profitable
If P = ATC, then the firm is considered as profitable, breaks even, or incurs a loss
breaks even
If P < ATC, then the firm is considered as profitable, breaks even, or incurs a loss
incurs a loss
In the short run, is fixed cost relevant to the decision of whether shut down should occur or not?
No, only variable costs matter
What should a firm do when a market price is below minimum average variable cost
cease production immediately
The minimum average variable cost is equal to
shut-down price
If Gnomes-R-Us (a competitive firm) produces where the marginal cost curve intersects with the average total cost curve at its minimum point, the firm will earn:
positive economic profits.
zero economic profits.
a short-run loss.
zero economic profits.
A firm will produce at every price above minimum ______ where price intersects the MC curve, but will stop producing in the short run if the ______ price falls below the shut-down price.
AVC
market
