Chapter 9 Econ Vocab

Price Maker

A Seller or buyer that is able to affect the product pr resource price by changing the amount it sells or buys

Market Power

refers to the ability of a firm (or group of firms) to raise and maintain price above the level that would prevail under competition is referred to as market or monopoly power. The exercise of market power leads to reduced output and loss of economic welfare.

Marginal Revenue

the change in total revenue that results from the sale of 1 additional unit of a firm's product; equal to the change in total revenue divided by the change in the quantity of the product sold.

Total Revenue

the total number of dollars received by a firm or firms from the sale of a product; equal to the total expenditures for the product produced by the firm; equal to the quantity sold multiplied by the price at which it is sold

Average Revenue Curve for Perfect Competition

The average revenue curve reflects the degree of market control held by a firm. For a perfectly competitive firm with no market control, the average revenue curve is a horizontal line. For firms with market control, especially monopoly, the average revenue curve is negatively-sloped.

Shutdown Point

The shutdown point is the combination of output and price where a firm earns just enough revenue to cover its total variable costs.

Monopoly

a market structure in which the number of sellers is so small that each seller is able to influence the total supply and the price of the good or service

Price Takers

a seller that is unable to affect the price at which a product or resource sells by changing the amount it sells

Break Even (Normal Profit) Point

an output at which a firm makes a normal profit (total revenue=total cost) but not an economic profit

Marginal Revenue = Marginal Cost Rule

profit is at maximum when marginal revenue equals marginal cost

Profit Maximizing using Total Revenue Approach

profit maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest profit.

Short-run Profit Maximization

firm maximizes its profits by choosing to supply the level of output where its marginal revenue equals its marginal cost. When marginal revenue exceeds marginal cost, the firm can earn greater profits by increasing its output. When marginal revenue is below marginal cost, the firm is losing money, and consequently, it must reduce its output. Profits are therefore maximized when the firm chooses the level of output where its marginal revenue equals its marginal cost.