Week 5- Perfect Competition Flashcards
Perfectly competitive firm known as___
Price taker.
Profit=
Total Revenue – Total cost
= (Price)(Quantity produced) – (Average cost)(Quantity produced)
Marginal revenue=
change in total revenue/ change in quantity.
Marginal cost=
change in total cost/ change in quantity
If Price > ATC
Firms earn profit.
If Price = ATC
Firm earns 0 profit.
If Price
Firm loss.
If Price
Firm shuts down.
If Price = minimum average variable cost___
Firm stays in business.
Shutdown point___
where marginal cost curve intersects average cost curve at the minimum point of AVC;
if price is below this point, firm shut down immediately.
- Constant cost industry
whenever there’s an increase in market demand and price, supply curve shifts to the right
- Increasing cost industry
companies may have to deal w/ limited inputs such as skilled labor. As demand of these workers rise, wages rise and this increase cost of production. Supply curve will be more inelastic.
- Decrease cost industry
, old and new firms experience lower costs of production, makes 0 profit level intersect at lower price than before. Here the industry and all the firms are experiencing falling average total costs.
