econ chapter 12
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
