MICRO HW8
A firm will make a profit when
P > ATC.
If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm
should shut down.
A very large number of small sellers who sell identical products imply
the inability of one seller to influence price.
An individual seller in perfect competition will not sell at a price lower than the market price because
the seller can sell any quantity she wants at the prevailing market price.
A firm will break even when
P = ATC.
If the market price is $25, the average revenue of selling five units is
$25.
Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's average profit?
P - ATC
A perfectly competitive firm earns a profit when price is
above minimum average total cost.
Both buyers and sellers are price takers in a perfectly competitive market because
each buyer and seller is too small relative to others to independently affect the market price.
Both individual buyers and sellers in perfect competition
have to take the market price as a given.
The demand curve for each seller's product in perfect competition is horizontal at the market price because
each seller is too small to affect market price.
If a perfectly competitive firm's price is above its average total cost, the firm
is earning a profit.
A perfectly competitive firm's supply curve is its
marginal cost curve above its minimum average variable cost.
If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then
new firms are attracted to the industry.
When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell
nothing at all; the firm shuts down.
In a perfectly competitive market the term "price taker" applies to
sellers and buyers.
If a perfectly competitive firm's total revenue is less than its total variable cost, the firm
should stop production by shutting down temporarily.
In the long run, a perfectly competitive market will
supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.
If a firm shuts down it
will suffer a loss equal to its fixed costs.
In the short run, a firm that is operating at a loss has two options. These options are
to shut down temporarily or continue to produce.