econ chapter 12

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maximize profits

Marginal Cost<Marginal Revenue

Allocative efficiency

a state in which the economy produces the best combination of consumer preferences, using price adjustment to equilibrium to provide a signal to producers to produce more or less units

what does long-run equilibrium in perfect competition results in?

both productive and allocative efficiency

What happens to the supply curve when a firm is making positive economic profit in the short run in perfect competition?

shift right

For a market to be perfectly​ competitive, there must be...

1) many buyers and​ sellers 2) all firms selling identical​ products 3) no barriers to new firms entering the market

price taker

A buyer or seller that is unable to affect the market price (competitive industries)

what is required in order to a firm to continue to produce?

In the short run, the firm will continue to produce as long as marginal revenue > average variable cost since the difference will at least cover a portion of fixed costs

In the short run, the firm should operate if

Operate if price > average variable cost

maximize profit

Profit is maximized at the point where marginal revenue = marginal cost. As long as marginal revenue > marginal cost, the firm can make additional profit by producing that next unit.

sunk costs

costs that have already been paid and cannot be recovered

What happens to the market price when a firm is making positive economic profit in the short run in perfect competition?

decrease

productive efficiency

goods are produced at the lowest possible cost

If the average total cost curve is above the demand curve, then this firm is....

having economic losses

In the short run, when should a firm operate?

operate if price > average variable cost.

A firm in perfect competition earns profit if...

price is greater than avg total cost

shutdown point for a perfectly competitive firm

the firm is at the point where marginal revenue exactly equals average variable cost so there is no reason to continue production

In perfect competition, the marginal revenue is...

the same as price

total cost equation

total cost + marginal cost

profit equation

total revenue - total cost


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