Microeconomics Chapter 12
Profit for a perfectly competing firm can be expressed as
Profit=(P-ATC)xQ
In the long run, perfect competition
results in allocative efficiency because firms produce where price equals marginal cost
Does the market system result in productive efficiency? In the long run, perfect competition...
results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost
What is the relationship between a perfectly competitive firm's marginal cost curve and it's supply curve?
A firm's marginal cost curve is equal to its supply curve for prices above average variable cost
What does a perfectly competitive market curve look like?
Horizontal
A price taker is...
a firm that is unable to affect the market price
In a perfectly competitive market, demand for oranges increases which results in the supply of oranges
also increases because producers seek the highest return on their investments
When do firms enter and exit an industry?
economic profits attract firms to enter the industry, and economic losses cause firms to exit an industry
In a perfectly competitive market, P=MR=AR because
firms can sell as much output as they want at the market price
A firm is likely to be a price taker when
it sells a product that is exactly the same as every other firm
For a market to be perfectly competitive, there must be
many buyers and sellers with all firms selling identical products no barriers to new firms entering the market
In a perfectly competitive industry in the long run,
new firms will enter if existing firms are making profit and existing firms will exit if they are experiencing losses
The supply curve for a firm in a perfectly compatible market in the short run is
that firm's marginal cost curve for prices at or above average variable cost
Perfectly competitive firms should produce the quantity where
the difference between total revenue and total cost is as large as possible