module 8 - econ
Use the table to answer the following question. Which of the following is true about the market for kale if we assume the market is perfectly competitive?
MR = AR = Firm Demand
marginal revenue
additional revenue associated with the sale of an additional unit of output.
Total Revenue Formula
Price x Quantity of units sold
Profit Maximizing Rule
Produce at the quantity at which Marginal Revenue (MR) = Marginal Cost (MC)
normal profit
The level of profit that occurs when total revenue is equal to total cost. This level indicates that a firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or compete in a different industry. Normal profit is also known as zero economic profit.
shutdown point
The price below which a firm will choose not to operate in the short-run. marginal revenue = marginal cost as the minimum average variable cost Price<AVC
short-run supply curve
a supply curve that represents the short run relationship between price and quantity supplied the portion of the MC curve above the AVC curve
constant cost industry
an industry in which the firms' cost structures do not vary with changes in production
Because the marginal revenue faced by the firm is equal to price,
average revenue is also equal to price.
in an ? cost industry, the long run supply curve is a horizontal line originating at the market ? that generates normal profits for the firms in the industry
constant price
in the presence of ? profits, firms enter a perfectly competitive market until the market reached the point at which the firms are generating a ? profit; then the entry stops and the market settles into its ? run equilibrium
economic normal long
economic profit creates an incentive for other perfectly competitive firms to ? the market
enter
total revenue minus the and costs of production is economic profit
explicit implicit
price takers (perfect competition)
firms that take or accept that market price and have no ability to influence that price - they can sell as much output as they choose to produce at a market price
when a firm shuts down in the short run, it must still pay the ? costs
fixed
The demand curve for a perfectly competitive firm is
horizontal
a perfectly competitive firm should produce output until the point where
marginal revenue equals marginal cost
perfect competition
market structure characterized by a large number of well-informed independent buyers and sellers who exchange identical products
Profit (maximization/minimization) implies that perfectly competitive firms should expand production up to the point where marginal revenue equals marginal cost.
maximization
MR=5.00, what is the profit maximizing quantity and profit amount
pounds=90, MC=5.00, ATC=4.10 (P-ATC)xQ=(5-4.10)x90=81
in a constant cost industry, perfectly competitive industry, what happens to price in the short run if the market demand increases
price increases
allocative efficiency
producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost
profit (in terms of total revenue and total cost)
profit (π)= total revenue - total cost/ouput - if π > 0, firm generates economic profit - if π = 0, firm generates normal profit - if π< 0, firm generates a loss
profit (in terms of price, average total cost, and output)
profit= profit per unit x output T=9P-ATC) xQ if T >0, firm generates economic profit if T=0, normal profit T<0, loss
Because the marginal___ equals the market ____ for perfectly competitive firms, they should produce output until the market price equals the marginal cost.
revenue price
In a perfectly competitive market, homogeneity means that firms must charge the same market price for the goods or the services they produce because there are hundreds of other perfectly good:
substitutes
Marginal Revenue (MR)
the change in a firm's total revenue that results from a 1-unit change in output produced and sold change in total revenue/change in quantity
Marginal Cost (MC)
the change in total costs associated with a one-unit change in output change in total cost/change output
economic profit
the level of profit that occurs when total revenue is greater than total cost
loss
the level of profit that occurs when total revenue is less than total cost AVC<Price<ATC
short run
the period of time during which at least one of a firm's inputs is fixed
long-run
the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant
average total cost
total cost/output average fixed cost + average variable cost
Profit equals
total revenue - total cost
increasing cost industries, the cost of production rises with expanded output and the long-run market supply curve slopes
upward
Suppose Carl's Candies sells 100 boxes of candy for $4 each. The total fixed cost of the 100 boxes is $100 and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a profit per unit of:
1.50
Suppose Carl's Candies sells 100 boxes of candy for $5 each. The total fixed cost of the 100 boxes is $100 and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a profit per unit of:
2.50
long run equilibrium
A market condition in which firms do not face incentives to enter or exit the market and firms earn a normal profit. Generally, it occurs when the market price is equal to the minimum average total cost faced by firms.
long-run supply curve
A supply curve that represents the long-run relationship between price and quantity supplied.
productive efficiency
Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service.
profit per unit
Profit Per Unit = Price - ATC
Average Revenue (AR)
Revenue per unit sold, equal to total revenue divided by the quantity of output produced and sold.
the firm's short-run supply curve is an ?-sloping curve that begins average variable cost
upward minimum
if the market price is above or equal to the average ? cost but below the average ? cost the firm should keep producing in the ? run even though it does so at an ?
variable total short loss
the short run supply curve starts at the minimum average
variable cost
example of perfectly competitive market
wheat, cucumbers, chlorine
