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