Ch. 12 and 13

perfectly competitive market

-There are many buyers and sellers, -All firms sell identical products, and -There are no barriers to new firms entering the market.

Marginal revenue (MR)

the change in total revenue from selling one more unit of a product

perfectly horizontal

the demand is ____ ______ when you know it is a perfectly competitive market

long-run supply curve

A curve that shows the relationship in the long run between market price and the quantity supplied.

The firm must decrease its price to sell a larger quantity.

A monopolistically competitive firm doesn't produce where P = MC like a perfectly competitive firm because

marketing

All the activities necessary for a firm to sell a product to a consumer.

Yes, because firms produce where the marginal benefit to consumers equals the marginal cost of

Are perfectly competitive markets allocatively efficient in the long run?

the interaction of market demand and supply because firms and consumers are price takers.

How are prices determined in perfectly competitive markets?

new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses.

In a perfectly competitive industry in the long run,

firms can sell as much output as they want at the market price.

In a perfectly competitive market, P = MR = AR because

-average variable cost curve, -in the long run, a firm's exit point is the minimum point on the average total cost curve.

In the short run, a firm's shutdown point is the minimum point on the...

the marginal revenue curve for a perfectly competitive firm is the same as its demand curve.

MR = MC is equivalent to P = MC because

the difference between total revenue and total cost is as large as possible.

Perfectly competitive firms should produce the quantity where...

. Profit = (P Q) − (ATC Q), where P is price, Q is output, and ATC is average total cost.

Profit for a perfectly competitive firm can be expressed as

brand management

The actions of a firm intended to maintain the differentiation of a product over time.

marginal revenue

The increase in total revenue that results from selling one more unit of output is

by horizontally adding the individual firms' supply curves

The market supply curve is derived

long-run competitive equilibrium

The situation in which the entry and exit of firms has resulted in the typical firm breaking even.

Charge a price greater than marginal cost and do not produce at minimum average total cost.

What are the differences between the long-run-equilibrium of a perfectly competitive firm and the long-run equilibrium of a monopolistically competitive firm? Unlike perfectly competitive firms, in the long run monopolistically competitive firms

Firms face downward-sloping demand curves, and the products competitors sell are differentiated.

What are the most important differences between perfectly competitive markets and monopolistically competitive markets? Unlike in perfectly competitive markets, in monopolistically competitive markets,

Will decrease because their demand curves will shift to the left.

What effect does the entry of new firms have on the economic profits of existing firms? When new firms enter a monopolistically competitive market, the economic profits of existing firms

Price is equal to both average revenue and marginal revenue.

What is the relationship between price, average revenue, and marginal revenue for a firm in a perfectly competitive market?

. Economic profits attract firms to enter an industry , and economic losses cause firms to exit an industry.

When are firms likely to enter an industry? When are they likely to exit?

There are sunk costs in the short run but not in the long run.

Why are firms willing to accept losses in the short run but not in the long run?

To maintain product differentiation and earn economic profits in the short run.

Why are so many companies concerned about brand management? Companies use brand management

it sells a product that is exactly the same as every other firm.

a firm is likely to be a price taker when

monopolistic competition

a market structure in which barriers to entry are low and many firms compete by selling similar, but not identical, products.

productive efficiency

a situation in which a good or service is produced at the lowest possible cost.

allocative efficiency

a state of the economy in which production represents consumer preferences

There will be no barriers to new firms entering the market

characteristic of perfectly competitive markets?

economic loss

if total cost exceeds the revenue

zero

if you have a perfectly competitive firm in the long run the economic profit equals ____

advertising

is a critical element of marketing for monopolistically competitive firms.

price takers

people who are unable to affect the market price

economic profit

revenue minus all the costs

marginal cost

to identify the profit maximizing quantity use ?=MR

Average revenue (AR)

total revenue divided by the quantity of the product sold

At the point where revenue is maximized, the difference between total revenue and total cost may not be maximized.

why firms don't maximize revenue rather than profit?