Econ test 3 ncsu
production function
relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
difference between short run and the long run
in the short run, at least one fo a firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology
short run profits encourage
entry
In a perfectly competitive market, P=MR=AR
firms can sell as much output as they want at the market price
any cost that remains unchanged as output changes represents a firms
fixed costs
market supply curve is derived by
horizontally adding the individual firms' supply curve
a firm's production function is best described as
illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs
what does short-run production hold constant?
the amount of capital
when maximizing profits, MR=MC is equivalent to P=MC because
the marginal revenue curve for perfectly competitive firm is the same as its demand curve
why are firms willing to a accept losses in the short run but not in the long run
there are fixed costs in the short run but not in the long run
productive efficiency is
when a good or service is produced at the lowest possible cost
When are firms likely to enter an industry?
when there are economic profits
in the short run, a firm's shutdown point is the minimum point on the
AVC cost curve, while in the long run, a firm's exit point is the minimum point on the average total cost curve
When are firms likely to exit an industry?
Economic losses cause firms to exit an industry
When the difference between TR & TC is at its maximum positive value
MR=MC: TR & TC have the same slope
What is the relationship between price, average revenue, and marginal revenue for a firm in a perfectly competitive market?
Price is equal to both average revenue and marginal revenue
A price taker
a firm that is unable to affect the market price; when it sells the same thing as everyone else in the market
What is the relationship between a perfectly competitive firm's marginal cost curve and its supply curve?
a firm's marginal cost curve is equal to its supply curve for prices above average variable cost
Law of diminishing returns
adding more of a variable input to the same amount of a fixed input will cause the marginal product of the variable input to decline (short run)
Why don't firms maximize revenue rather than profit
at the point where revenue is maximized, the difference between total revenue and total cost may not be maximized
why are consumers so powerful in a market system?
because it is consumers' demand that influences the market price and dictates what producers will supply in the market
Perfect competition leads to allocative and productive efficiency
because prices reflect customer preferences & because firms are motivated by profit
Allocative efficiency is when every good or service
is produced up to the point where price equals marginal cost
how does specialization and division of labor increase marginal product for workers?
it allows the workers to concentrate on fewer tasks so they become more skilled at doing them quickly and efficiently
What are the three conditions for a market to be perfectly competitive?
many buyers & sellers, identical products, & no barriers
the increase in total revenue that results from selling on more unit of output is
marginal revenue
Technological change includes
new products, managers skills & the efficiency of the equipment
implicit cost
non monetary opportunity cost
If the market for beer were perfectly competitive, the location of breweries would
not matter to consumers since the product would be homogenous
difference between productive efficiency and allocative efficiency
productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industries
In long-run competitive equilibrium, a firm earning zero economic profit
will continue to produce because such profit is as high a return as could be earned elsewhere
Can technological change be negative?
yes, if a hurricane damages a firms facilities