Micro ch.11

Short-run market supply curve

shows the quantity supplied by all the firms in the market at each price when each firm's plant and the number of firms remain the same.

What happens when firms enter a market (entry and exit in long-run)

supply increases and the market supply curve shifts rightward. The increase in supply lowers the market price and eventually eliminate economic profit. Entry results in an increase in market output, but each firm's output decreases bc the price falls, each firm moves down their supply curve.

marginal revenue

the amount earned or the change in total revenue that results from a one-unit increase in the quantity sold. Is calculated by change in total revenue divided by change in the quantity sold.

shutdown point

the price and quantity at which it is indifferent between producing and shutting down. SO they shut down temporarily and while they are shut down they try to minimize loss, and loss is equal to total fixed cost.

If firms exit a market what happens?

the supply decreases and the market supply curve shifts leftward.

Short run equilibrium

this is where the supply and demand meet, this will be used by other firms and is considered the profit-maximizing output.

Changes in demand and supply as technology changes. (increase in demand)

this triggers a similar but opposite response. It brings a higher price, economic profit and entry.

minimum efficient scale

The lowest point on a cost curve at which a company can produce it's product at a competitive price. So lower production price and sold at a competitive market price.

total revenue

The price of its output multiplied by the quantity of output sold.

The market price and how it came to be. (short-run market price.)

The quantity supplied by the market at a given price is the sum of the quantities supplied by all the firms in the market at that price. So all of the individual market prices added up together.

price taker

A firm that cannot influence the market price because its production is an insignificant part of the total market. Basically they are saying that a firm is so small in such a huge market that them leaving of getting big won't have an influence on the market as a whole.

What is a firms goal

A firms goal is to maximize profit, to calculate profit you just do total revenue minus total cost.

Loss comparisons

A firms loss is equal to: TFC+(AVC-P)XQ We know how this came to be --> AVC X P is going to be equal to TVC. And P X Q is going to be equal to TR. SO the original equation would be TFC+TVC-TR. Basically ig this equation is equals to 0 or a negative number, it is an economic loss.

What happens to marginal cost as output increases.

As output increases, the firms marginal cost eventually increases. That's just the way it works.

Shut down points when there are multiple lines for marginal revenue.

As we can see from the graph there are several lines for marginal revenue, so you may be wondering where would the shut down point be because there are so many intersections. Well fear not bc we know where the point of shut down will be, it is at the lowest line where marginal revenue and marginal cost meet. PURRR Why is it the shutdown point, because there is no down from there, it is empty.

what do total revenue and total cost curves help determine.

Both curves can help determine a firms total profit. Profit is calculated by subtracting revenue from cost. Therefore, you can find at which quantity a firm is able to maximize its profits.

entry and exit of firms (long-run)

Entry occurs in a market when new firms come into the market and the number of firms increases. Exit occurs when existing firms leave a market and the number of firms decrease. Firms respond to economic profit and economic loss by either entering or exiting a market. temporary economic profit and temporary economic loss do not trigger entry and exit.

Profits and losses in short run curves.

Even though the shirt-run equilibrium curve is supposed to maximize profits, that doesn't always mean there are no losses. When all three marginal cost, average total curve and marginal revenue are intersecting at one point, that is where they break even. When marginal cost is below marginal revenue there is profit bc, there is no loss. When marginal cost is higher than the marginal revenue curve then there is a loss.

consumer surplus

From what I understand it is the concept of the certain amount that you didn't pay because there was a much lesser price.

producer surplus

From what I understand, it is giving, the amount that they didn't receive because there was a much higher price for the consumers to pay.

Changes in demand in the supply/demand short-run market equilibrium.

If demand increases then the demand curve shifts rightward, the market price will rise. Each maximizing profit will increase. If demand decreases, the curve shifts leftwards, and market price falls.

Why is a firm's marginal revenue curve also the demand curve for the firm's output?

In a perfectly competitive market, a firms demand curve is a horizontal line. Bc whatever the quantity may be, the price is always constant. (there is a market price and whatever that price may be, it stays constant w different quantities.) And marginal revenue is a firms change in revenue from a one-unit increase in production. This will be the same as the demand curve because, a one unit increase will still have the same price yk.

Perfect competition and how it works for consumers.

In perfect competition, each firm produces a good that has no unique characteristic's, so consumers don't care which firm's good they buy.

Total revenue

Is equal to the price multiplied by the quantity sold.

in perfect competition what is the firms marginal revenue equal to

Marginal revenue is going to be equal to market price in a perfect competition market.

Total revenue and total cost and the costs that they incur.

On the graph with the curves, we can see that all the points from the table are plotted. We can see where we made profit and where there was a loss. the negative numbers and 0 indicate a loss. The second graph just takes those loses and actually plots them down.

The law of supply

Other things remaining the same, the higher the market price of a good, the greater is the quantity supplied of that good.

Marginal revenue

The change in total revenue that results from a one-unit increase of quantity sold. To calculate marginal revenue we do change in total revenue divided by the change in quantity.

what happens if marginal revenue is equal to marginal cost.

The revenue from selling one more unit of a good equals the cost incurred to produce that unit. This is where economic profit is maximized. When marginal cost and marginal revenue are equal. On the graph it is where they intersect.

What happens if marginal revenue exceeds marginal cost.

This means that the revenue from selling one more unit of a good is much more than the cost of producing another unit. This directly translates to...there will be an increase of economic profit. SO below the marginal revenue line means a profit, because revenue is more than production cost. To figure this out literally look at the definitions of the terms, marginal cost vs. marginal revenue.

If marginal revenue is less than marginal cost, what does that mean.?

This means that the revenue of selling one more unit is less than the cost of producing one more unit of the good. Therefore there is a loss instead of a profit, if you are paying more than you are earning, it is not a good sign.

How do we calculate the market supply by looking at individual supply? [Pls this is all short-run BTW]

We can do that by multiplying the the quantities supplied by the amount of firms there are. For example if there is 1000 firms then you multiply all your quantities by that.

shut down point on the graph.

We can see from a graph that the shut down point for this is where marginal cost and marginal revenue meet. This is described as the shut down point because they are only temporarily closed, they open back up after minimizing costs.

Market supply in the short run and how the graph looks.

We can see from this graph that at prices below 17, every firm in the market has to go into lockdown. at the specific price of 17, the firms will be indifferent between shuting down and producing nothing.

how tot will if markets are going to be in long-run equilibrium?

Well, we can see that if they are using the very new advanced technology, they will probably not stay in long-run equilibrium because at some point profits go down because every firm starts using that technology. Technological change brings only temporary gains.

Why does competition achieve an efficient allocation of resources.

Welp, it allows for efficient use of resources, we produce the goods and services that people want and nothing else. That means we are using our resources in the right way.

Changes in demand and supply as technology changes. (decrease in demand)

With technology there is less of a need for traditional retail services so demand goes down which means the equilibrium price of retail services falls and stores incur economic losses. But in turn the demand goes back up because limited supply means that market price rises and firms increase output. It is then a viscous circle.

perfect competition

many firms sell identical products, there is no restriction to entry in the market, established firms do not have advantage over other younger firms. Sellers and buyers are well informed about prices. SO basically a completely fair market that does not discriminate between firms, no one has an upper had over any one.

what remains constant as output increases ?

marginal revenue stays constant as output increases because markets detect the price that firms are to sell their products at. Therefore their quantity produced changes but price stays constant.

Changed in SUPPLY as technology changes

new technologies lower production costs. With new technology, the first firms to use it make a profit, but after every one has them economic profit goes back down again because the as market supply increases the price falls.

firms in perfect competition are what?

price takers.

temporary shutdown decisions

when a firm looks at their profit and they see that maximum profit is a loss, they either decide to shut down if it is long term or they will make changes if it is expected to be short term.

Long-run equilibrium

when economic profit and economic loss has been eliminated and entry and exit have stopped, a competitive market is in long-run equilibrium.

breakeven point

when the firm makes 0 economic profit. It is called the break-even point.