WEEK 6 Flashcards
Assumptions in perfect competition
market has many buyers and sellers
Homogeneity of output
No barriers to ntry
Perfect info and low transacion cost
Firms are what in perfect competition
Price takers
Perfect competition is the benchmark of what
Efficiency
What is the difference with perfect competition in the short run
Capital is fixed
What does profit equal
Total revenue - Total costs
What shape is the Profit graph
An n shape
How to find total revenue
Price x quantity sold
How to find average revenue
total revenue / quantity sold —- Price
How to find marginal revenue
Differentiate total revenue
In a perfectly competitive market when does profit maximising output level occur
When p=MC
When is profit maximised
When marginal cost cuts marginal revenue from below on the graph
How to find super normal profit
(AR x when mc meets MR) - (AC x when mc meets AC)
how to find the profit maximising quantity when given a price
Find the Marginal cost and revenue and make em equal each other
If a firm is operating what is the equation
Profit = TR - TC
If shut down whats the equation
Profit = 0
As long as what should the firm keep operating
TR covers the Vc (P greater than or equal to AVC)
Firm shuts down when
P < AVC
how to find the industry supply curve
The sum of individual firms supply curves
What is free entry
The ability of a firm to enter an industry without a barrier
in the long run all factors of production are what
variable
In long run competitive equilibrium why do firms enter and leave
Attracted to super normal profits
Owing to losses
When does long-run competitive equilibrium occur
At the point where the market price is equal to the minimum average total cost
At the equilibrium firms earn what
Zero economic profit
The existence of supernormal profits attracts what
new entrants into the industry
When supply increases what happens under equilibrium in perfect comp
Pushes the price down - shifting the demand curve down until no super normal profits are made
When super normal profits aren’t available what happens
There is no incentive for more firms to join so the industry turns into long run equilibrium
