AP Econ Chapter 14

short run demand increase

If demand increases in the short run it raises the price and attracts firms to the market, which increases the supply, bringing it all back to zero, even though the quantity sold in the market is higher.

long-run supply curve

The competitive firm's long-run supply curve is the portion of its marginal cost that lies above the average-total-cost curve.

short-run supply curve

The competitive firm's short-run supply curve is the portion of its marginal cost curve that lies above the average-variable-cost curve.

total revenue equation

=Price*Quantity

MC and supply curves

Because the firm's marginal cost curve determines how much the firm is willing to supply at any price, it is the competitive firm's supply curve.

zero economic profit?

Firms that remain in the market must be making zero economic profit. Those who leave the market always shift the supply curve, creating a new mr. darp (price) that the remaining firms either deal with, or leave the market. Either way, they won't be making a profit (man it sucks to be a farmer). BUUUUT remember that economic profit includes ALL OPPORTUNITY costs (which a lot of firms don't really care about). This is why it makes sense that businesses stay in business in the long-run despite their ECONOMIC profits equaling zero.

Two characteristics of a competitive market

There are many buyers and sellers in the market, the gods offered for sale are largely the same.

long-run perfect elasticity

Usually long-run market supply curves are perfectly elastic. Unless the price of an input good is extremely high, or if the efficiency of the different firms are different.

While marginal revenue is above marginal cost.

When do companies get profit?

sunk costs

costs that cannot be recovered when producing nothing because they are fixed

examples of shutdowns

farmers leaving idle land for a season and restaurants closing for lunch.

Average Revenue

the "AR" in MR=D=AR=P. total revenue/quantity of output.

Marginal Revenue

the "MR" in MR=D=AR=P. the change in total revenue from the sale of an additional unit of output.

long-run elasticity

the long-run market supply curve is more elastic than the short-run market supply curve because firms can enter and exit more easily in the long-run.

shutdown

this would occur is the firm's revenue is less than the FC AS WELL AS THE VC of production.

If a firm produces above OQ, then MC<MR profit will be created if output is increased. If a firm produces below OQ, then MC>MR and profit can only be created when output is reduced.

what happens above and below optimal quantity?

Special third characteristic of a competitive market

(sometimes) firms can freely enter or exit the market

competitive firms

firms that do not have market power

optimal quantity

where MR=MC