Econ 3 Ch 12

If one farmer stops growing wheat, what will happen to the *market price* of wheat?

The market price of wheat will not be affected at all because one farmer leaving the market will not shift the market supply enough to change the equilibrium price by even one cent

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

What does the demand curve look like for a perfectly competitive firm?

perfectly elastic, horizontal demand

Total revenue (TR = )

Price times quantity (P * Q)

Price taker

A buyer or seller that is unable to affect the market price

Long-run supply cuve

A curve that shows the relationship in the long run between market price and the quantity supplied

When should a firm shut down temporarily? When should it stay open, even if it loses profit overall?

A firm should shut down if producing would cause it to lose an amount greater than its fixed costs; A firm should stay open to mitigate the loss from fixed costs, provided that the total revenue it receives is greater than its variable costs (it would have a smaller loss by continuing to produce than if it shut down)

Economic profit

A firm's revenues minus all its costs, both implicit and explicit

Allocative efficiency

A state of the economy in which production represents consumer preferences; in particular, 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

For a firm in a perfectly competitive market, price is equal to what?

Average revenue and marginal revenue

The marginal revenue curve for a perfectly competitive firm is the same as what other curve?

Demand curve

What would happen if a single firm in a perfectly competitive market tried to sell a product for one cent higher than market (equilibrium) price?

It would not sell a single unit of the product as any buyer would buy elsewhere

Conditions for a perfectly competitive market

Many buyers and sellers, all firms selling identical products, and no barriers to new firms entering the market

Can a perfectly competitive firm affect the market price? Why or why not?

No, because firms in perfectly competitive markets are price takers rather than price makers

How do you write the profit equation in terms of ATC? What does this tell us in graphical form?

Profit = (P - ATC) * Q; It shows us that the area between the market price, ATC, and quantity represents the total profit

What should we assume fixed costs as when analyzing a firm's decision to shut down?

Sunk cost

Marginal revenue (MR = )

The change in total revenue from selling one more unit of a product (deltaT / delta Q)

Economic loss

The situation in which a firm's total revenue is less than its total cost, including all implicit costs

Productive efficiency

The situation in which a good or service is produced at the lowest possible cost

Long-run competitive equilibrium

The situation in which the entry and exit of firms as resulted in the typical firm breaking even

In a perfectly competitive market in the short run, what can the marginal cost curve be substituted for?

The supply curve, given that TR >= VC

Average revenue (AR = )

Total revenue divided by the quantity of the product sold (TR / Q)

Profit (P =)

Total revenue minus total cost (TR - TC)

Where is the *profit maximizing level of output*? (Think in terms of TR/TC and MR/MC)

Where the difference between total revenue and total cost is the greatest; where marginal revenue equals marginal cost

The ___________ price in a perfectly competitive market is equivalent to the ______ for an indiviual firm

equilibrium, demand