Econ201 exam 2:perfect competition
marginal revenue equation
change in total revenue/change in quantity
PROFIT (IN TERMS OF PRICE, AVERAGE TOTAL COST, AND OUTPUT) equation
(P-ATC) X Q
_______ demand, relatively _____ firms
-large -small
Normal Profit • Profit when TR __ TC
=
Economic Profit • Profit when TR ___ TC
>
on a graph, where is the short-run supply curve
For a perfectly competitive firm, the portion of the marginal cost curve that is at or above the minimum point on the average variable cost curve
PROFIT-MAXIMIZING RULE
Produce at the quantity at which Marginal Revenue (MR) = Marginal Cost (MC)
average revenue
Revenue per unit sold, equal to total revenue divided by the quantity of output produced and sold.
marginal revenue
The change in a firm's total revenue that results from a 1-unit change in output produced and sold
Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost.
allocative efficiency
An industry in which the firms' cost structures do not vary with changes in production.
constant cost industry
The level of profit that occurs when total revenue is greater than total cost.
economic profit
if profit is > 0, the firm generates __________ _________
economic profit
A market condition in which firms do not face incentives to enter or exit the market and firms earn a normal profit. Generally, it occurs when the market price is equal to the minimum average total cost faced by firms.
long run equilibrium
A supply curve that represents the long-run relationship between price and quantity supplied.
long run supply curve
The level of profit that occurs when total revenue is less than total cost.
loss
if profit is <0, the firm generates _______
loss
price = ________ = _________
marginal revenue average revenue
The level of profit that occurs when total revenue is equal to total cost. This level indicates that a firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or compete in a different industry.
normal profit
if profit =o, the firm generates _________ _________
normal profit
A market structure characterized by the interaction of large numbers of buyers and sellers, in which the sellers produce a standardized, or homogeneous, product. These sellers are price takers, can sell as much output as they choose to produce at the market price, and have the ability to easily enter or exit an industry.
perfect competition
economic product is
positive
profit per unit equation
price - ATC
Firms that take or accept the market price and have no ability to influence that price
price takers
Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service
productive efficiency
A supply curve that represents the short- run relationship between price and quantity supplied
short run supply curve
The price below which a firm will choose not to operate in the short-run
shutdown point
shutdown point graphically
this point occurs where the price, or marginal revenue curve, intersects the marginal cost curve at the minimum point of the average variable cost curve
average revenue equation
total revenue/quantity
normal profit has _____ economic profit
zero
short run decisions
• 1) What quantity of output will maximize profit? • MR = MC • A) What is the profit amount? • (P-ATC) * Q • 2.) Should the firm shut down in the short run? • IfP<minAVC---> shutdown!
examples of perfect competition
• Agriculture •Gas Stations •Dry Cleaning
4 characteristics of perfect competition
• Large number of sellers • Standardized product • Price takers • Easy entry and exit
Decreasing-Cost Industry
• Long-run supply curve slopes downward. • The cost of production falls with expanded output.
Increasing-Cost Industry
• Long-run supply curve slopes upward. • The cost of production rises with expanded output.
Produce at a loss if
𝑨𝑽𝑪 ≤𝑷<𝑨𝑻𝑪
Shut down if
𝑷 < 𝑨𝑽𝑪