Perfect Competition
to calculate profit we need to identify 3 pieces of info
average total cost, quantity of output, price
In a perfectly competitive market, we assume the product is identical in the minds of
consumers
when consumers are relatively sensitive to changes in price
demand is considered elastic
normal profit is also known as zero _____ profit
economic
total revenue minus the implicit and explicit costs of production is ____ profit
economic
when consumers are relatively sensitive to change in price, demand is considered relatively
elastic
the level of profit that occurs when total revenue is _____ to total cost is known as normal profit
equal
total revenue equals
price times quantity
marginal revenue is the
additional revenue associated with the sale of an additional unit
average revenue is the
amount of revenue per unit of a product sold
in a perfectly competitive market the price of the firm should charge is the market price because the firm is a price
taker
in a perfectly competitive market, the price the firm should charge is the market price because the firm is a price _____
taker
Profit equals ____ revenue minus ____ cost
total, total
a company can break even and meet operating costs without a loss when it earns ___ economic profit
zero
marginal cost is the
extra or additional cost associated with the production of an additional unit of output
in a perfectly competitive market, a single firm is a price taker, and therefore, can only change the _____ price
market
profit _____ implies that perfectly competitive firms should expand production up to the point where marginal revenue equals marginal cost
maximization
total revenue minus the ______ and ______ costs of production is economic profit
explicit, implicit
The four characteristics of a perfectly competitive market are
a standardized product, large number of buyer and sellers, producers who are price takers, easy entry and exit
which of the following is not a characteristic of perfect competition? A- large numbers of buyers and sellers B- producers who are price makers C- easy entry and exit D- standardized products
b
the ____, the average revenue, and the marginal revenue curves for a perfectly competitive firm are the same horizontal line at the market price
demand
the two conditions that guarantee consumers will enjoy the lowest prices possible are
every firm producing the same exact product, individual firms being price takers
a perfectly competitive firm will incur its total ____ cost of production when it shuts down
fixed
when a firm shuts down in the short run, it must still pay the ____ costs
fixed
the demand for a perfectly competitive firm's product is a _____ line originating at the market price
horizontal
When the total revenue is less than the total cost, the level of profit that occurs is a ----
loss
as the market price decreases, all else held constant, a profit-maximizing firm can_____ its production
lower
Extra or additional revenue associated with the production of an additional unit of output is the _____ revenue
marginal
for a perfectly competitive firm, the market price is equal to
marginal revenue, demand, average revenue
a ____ profit simply indicates that the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or to compete in a different industry
normal
market structure characterized by the interaction of large numbers of buyers and sellers, in which the sellers produce a standardized, or homogeneous, product.
perfect competition
firms that take or accept the market price and have no ability to influence that price are known as ______ takers
price
if an economy is going to produce the goods and services most wanted by society, competitive firms
produce more of the products we value most and fewer of the products we value least
all firms maximize profits by producing the quantity of output at which the marginal _____ is equal to the marginal ____
revenue, cost
profit equals (average ____ minus average total _____) multiplied by output
revenue. cost
