Microeconomics((((((((((((
output effect
firm cuts price, it sells more of good
price < average total cost
firm experiences losses
price > average total cost
firm makes a profit
supply curve for a perfectly competitive firm in the short run
firm's marginal cost curve for prices at or above average variable cost.
entry of firms
forces down the market price until the typical firm is breaking even
differences between perfect comp and mono comp 1.
mono comp firms charge a price greater than marginal cost
differences between perfect comp and mono comp 2.
mono comp firms do not produce at minimum average total cost
perfectly competitive firm produced where
price=marginal cost
a perfectly competitive firm's marginal cost curve is only its supply curve only for
prices at or above average variable cost
in the long run, perfect competition
results in allocative efficiency because firms produce where price equals marginal cost
apply growing
perfectly competitive man firms identical product high ease of entry
a firm will shut down if
price < average variable cost
monopolistically competitive firm produced where
price >marginal cost
profit =
(price- average total cost) x quantity
the profit - maximizing level of output
1. the difference between total revenue and total cost is the greatest 2.marginal revenue = marginal cost
price taker
a buyer or seller that is unable to affect the market price and takes the market price as given ex: seller can sell as much as he wants at market price, but can't sell any at a higher price
why would a firm produce in the short run while experiencing losses?
a firm would not shut down if by producing it would lose an amount less than its total fixed costs
a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until
a firm's demand curve is tangent to its average total cost curve
economic profit
a firm's revenues minus all its cost, implicit and explicit
does NOT achieve allocative efficiency and productive efficiency
a monopolistically competitive market
allocative efficiency
a state of the economy in which production represents consumer preferences; every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it
the marginal revenue curve for a perfectly competitive firm is the same
as it's demand curve
profit is maximized
at the level of output where marginal revenue equals marginal cost
monopolistically competitive firms break even, in the long run
at the point at which the demand curve is tangent to the average cost curve, price is equal to average total cost
firm in a perfectly competitive market, the price is equal to
average revenue and marginal revenue
consumers benefit from monopolistic competition bye
being able to choose from products more closely suited to their tastes
marginal revenue
change in total revenue ________________________ change in quantity
the effect of competition on the long run average cost curve
competition drives the market price to the minimum point on the typical firm's long run average cost curve
in the long run, mono comp firms will not experience
economic profits nor economic losses
# of small farms fall and in their place fewer, but larger farms owned by corporations take there place... example of?
economies of scale in farming
demand curve for a price taker
horizontal
any industry in which the typical firm's average cost do not change as the industry expands production
horizontal long run supply curve
increasing cost industries
industries with upward sloping long run supply curves
the long run average cost curve
shows the lowest cost at which a firm is able to produce a given quantity of output in the long run
brand management
the actions of a firm intended to maintain the differentiation of a product over time
marginal revenue is negative
the addition revenue received from selling 1 more good is smaller than the revenue lost from receiving a lower price on the good that could have been sold at the original price
the difference between the marginal revenue and the marginal cost is
the additional profit (or loss) from producing one more good/service
marginal cost curve intersects
the average variable cost where the average variable cost curve is at its minimum point
marginal revenue
the change in total revenue from selling one more unit
in the short run, marginal product of labor increases at first and then falls because
there are fewer opportunities for division or labor and specialization when fewer workers are hired
price = average total cost
the firm breaks even total cost = total revenue
prices below minimum point of the average variable cost
the firm will shut down and its output will fall to zero (shut down point)
the more firms there are in an industry
the further to the right the market supply curve is
shutdown point
the minimum point on a firm's average variable cost curve; if the price falls below this point, the firm shuts down production in the short run
Mono comp firms: in the long run the demand curve is more elastic because
the more firms there are in the area, the more sales the firm will lose to other firms if it raises its price
what makes a market perfectly competitive 2.
the products sold by all firms in the market must be identical
ONLY firms in a competitive market have marginal curves that are
the same as their demand curves
long run competitive equilibrium
the situation in which the entry and exit of firms has resulted in the typical firm breaking even
what makes a market perfectly competitive 1.
there must be many buyers and many firms, all of which are small relative to the market
what makes a market perfectly competitive 3.
there must be no barriers to new firms entering the market
all firms use the same approach to maximize profits
they produce where marginal revenue = marginal cost
a profit maximizing rule for a monopolistically competitive firm
to produce a quantity such that the marginal revenue equals marginal cost
average revenue
total revenue ____________________________ quantity of the product sold
in the long run, a perfectly competitive market will supply
whatever amount of a good consumers demand at a price determined by the minimum point on the typical firm's average total cost curve
price effect
when firm cuts price, it receives x amount less for each good that could have sold at the higher price
allocative efficiency
where every good is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it
every firm that has the ability to affect the price of the good it sells
will have a marginal revenue curve that is BELOW its demand curve