ch.3
when you're operating in a perfectly competitive market, your best strategy is to charge a price that is pretty much identical to whatever your _______________ are charging
competitors are charging
the market supply curve is which way sloping?
curve is upward sloping
a second reason why your marginal costs might rise as you increase production
the cost of your inputs might rise
marginal product
the extra output you get from an additional unit of input, like hiring one more worker, is called the .....
market supply
the sum of the quantity supplies by each seller
fixed costs
these costs don't vary when you change the quantity of output you produce, like land
variable costs
these costs, like labor and raw materials, vary with the quantity of output you produce
prices of related outputs, substitutes-in-production
when the price increase of one good (like diesel) decreases your supply of another (like gasoline), we call them....
individual supply curve
a graph of the quantity that a business plans to sell at each price
to maximize your profits, keep applying the rational rule for sellers, continuing to produce until:
price=marginal cost
profit
revenues - costs
rational rule for sellers in competitive markets
sell one more item if the price is greater than (or equal to) the marginal cost
price-taker, example: perfectly competitive firms
someone who decides to charge the prevailing price and whose actions do not affect the prevailing price
productivity and technology
supply curve towards the right when there's more efficient production technology
law of supply
supply curves are upward sloping
supply shifter four: expectations
supply is greater (more right) when next year's price is expected to be lower
marginal principle
"how many" gallons of gas should I supply?
cost-benefit principle
"should" I sell one more gallon?
two reasons that a higher price leads to a larger quantity supplied to the market
1. a higher price leads individual businesses to supply a larger quantity 2.a higher price means more businesses are supplying their goods and services; a lower price means fewer businesses are doing so.
the rational rule for sellers is important for two reasons
1. provides useful advice to you 2. if you need to forecast the supply decisions of a savvy manager
perfect competition
1.) all firms in the market are selling an identical good 2.) there are many sellers and many buyers
opportunity cost principle
calculate marginal cost that includes variable costs, but not fixed costs
input prices
can supply more (supply curve more right) with more
complements-in-production
goods that are made together. your supply of a good will increase if the price of a complement-in-production rises
five factors that shift the supply curve
input prices productivity and technology prices of related outputs expectations the type and number of sellers
why is the market supply curve so useful to managers?
it summarizes the behavior of their competitors
price=
marginal cost
supply shifter five: the type and number of sellers
market supply with a large number of sellers is more to the right
diminishing marginal product
occurs when the marginal product of an input declines as you use more of it