ACTUAL CHAPTER 15 MICRO

perfect..shutdown ...supply...demand

Is Perfect Competition Efficient? Resources are used efficiently when it is not possible to get more of one good without giving up something that is valued more highly. To achieve this outcome, marginal benefit must equal marginal cost. That is what -- competition achieves. The market supply curve is the marginal cost curve. It is the sum of the firms' marginal cost curves at all points above the minimum of average variable cost (the ---price). The market --curve is the marginal cost curve. The market -- curve is the marginal benefit curve. Because the market supply and market demand curves intersect at the equilibrium price, that price equals both marginal cost and marginal benefit.

marginal revenue

In perfect competition, market demand and market supply determine price. A firm's total revenue equals the market price multiplied by the quantity sold. A firm's --is the change in total revenue that results from a one-unit increase in the quantity sold. Figure 15.1 on the next slide illustrates the revenue concepts.

Perfect competition... long

Is Perfect Competition Fair? -- places no restrictions on anyone's actions—everyone is free to try to make an economic profit. The process of competition eliminates economic profit and brings maximum attainable benefit to consumers. Fairness as equality of opportunity and fairness as equality of outcomes are achieved in---run equilibrium.

Perfect competition

___exists when Many firms sell an identical product to many buyers. There are no restrictions on entry into (or exit from) the market. Established firms have no advantage over new firms. Sellers and buyers are well informed about prices.

Total revenue... decreases....economic profit.....largest,

-- increases as the quantity increases —shown by the TR curve. Total cost increases as the quantity increases—shown by the TC curve. As the quantity increases, economic profit (TR - TC) increases, reaches a maximum, and then___ When total revenue exceeds total cost, the firm earns an __ Profit is maximized when the gap between total revenue and total cost is the -- at 10 cans per day.

price taker

A ---is a firm that cannot influence the price of the good or service that it produces. The firm in perfect competition is a price taker.

firms...demand

Change in Demand The difference between the initial long-run equilibrium and the final long-run equilibrium is the number of --in the market. An increase in demand increases the number of firms. Each firm produces the same output in the new long-run equilibrium as initially and makes zero economic profit. In the process of moving from the initial equilibrium to the new one, firms make positive economic profits. A decrease in --triggers a similar response, except in the opposite direction. The decrease brings a lower price, economic loss, and some firms exit. Exit decreases market supply and eventually raises the price to its original level.

supply leftward.

Entry and Exit In the long run, firms respond to economic profit and economic loss by either entering or exiting a market. New firms enter a market in which the existing firms are making positive economic profits. Existing firms exit the market in which firms are incurring economic losses. Entry and exit influence price, the quantity produced, and economic profit. The immediate effect of the decision to enter or exit is to shift the market --curve. If more firms enter a market, supply increases and the market supply curve shifts rightward. If firms exit a market, supply decreases and the market supply curve shifts --

Marginal analysis ...marginal revenue ...Economic profit

Marginal Analysis and the Supply Decision --compares marginal revenue, MR, with marginal cost, MC. As output increases, marginal revenue remains constant but marginal cost increases. If marginal revenue exceeds marginal cost (if MR > MC), the extra revenue from selling one more unit exceeds the extra cost incurred to produce it. Economic profit increases if output increases. If --is less than marginal cost (if MR < MC), the extra revenue from selling one more unit is less than the extra cost incurred to produce it. Economic profit increases if output decreases. If marginal revenue equals marginal cost (if MR = MC), the extra revenue from selling one more unit is equal to the extra cost incurred to produce it. ----decreases if output increases or decreases, so economic profit is maximized.

zero

Neither good times nor bad times last forever in perfect competition. In the long run, a firm in perfect competition makes--- profit.

Monopoly Monopolistic competition Oligopoly

Other Market Types --is a market for a good or service that has no close substitutes and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms. --is a market in which a large number of firms compete by making similar but slightly different products. -- is a market in which a small number of firms compete.

increases.

Profit-Maximizing Output As output increases, total revenue --- But total cost also increases. Because of decreasing marginal returns, total cost eventually increases faster than total revenue. There is one output level that maximizes economic profit, and a perfectly competitive firm chooses this output level. One way to find the profit-maximizing output is to use a firm's total revenue and total cost curves. Profit is maximized at the output level at which total revenue exceeds total cost by the largest amount. Figure 15.2 on the next slide illustrates this approach.

... downward. ...rightward.

Technological Change New technology allows firms to produce at a lower cost. As a result, as firms adopt a new technology, their cost curves shift-- Market supply increases, and the market supply curve shifts -- With a given demand, the quantity produced increases and the price falls.

..fixed ..Total

Temporary Shutdown Decisions If a firm is incurring an economic loss that it believes is temporary, it will remain in the market, and it might produce some output or temporarily shut down. If the firm shuts down temporarily, it incurs an economic loss equal to total --cost. If the firm produces some output, it incurs an economic loss equal to total fixed cost plus total variable cost minus total revenue. If total revenue exceeds total variable cost, the firm's economic loss is less than total fixed cost. So it pays the firm to produce and incur an economic loss. If total revenue were less than total variable cost, the firm's economic loss would exceed total fixed cost. So the firm would shut down temporarily. --- fixed cost is the largest economic loss that the firm will incur. The firm's economic loss equals total fixed cost when price equals average variable cost. So the firm produces some output if price exceeds average variable cost and shuts down temporarily if average variable cost exceeds price.

perfectly

The Firm's Short-Run Supply Curve A --competitive firm's short-run supply curve shows how the firm's profit-maximizing output varies as the price varies, other things remaining the same. Figure 15.5 on the next slide illustrates a firm's supply curve and its relationship to the firm's cost curves.

shutdown point

The firm's --is the output and price at which price equals minimum average variable cost. Figure 15.4 on the next slide illustrates a firm's shutdown point.

shutdown

The firm's marginal cost curve is MC. Its average variable cost curve is AVC, and its marginal revenue curve is MR0. With a market price (and MR0) of $3 a can, the firm maximizes profit by producing 7 cans a day—at its -- point.

Perfect competition Monopoly Monopolistic competition Oligopoly

The four market types are ----,---,---,---