ECON 2106 - chapter 12 for final (perfect competition)

identical products

in a perfectly competitive market, many firms sell _ to many buyers

price taker

a firm that cannot influence the price of a good or service

are not

there (are/are not) restrictions to entry into the industry

minimum efficient scale

the firm's _ is quite small relative to the market demand, so there is room for many firms in the market

perfect substitute; perfectly elastic

each firm's product is a _ for the product of the other firms in that market, so the demand for each firm's product is _

price x quantity

total revenue =

price, or total revenue / quantity

average revenue =

price, or change in total revenue / change in quantity

marginal revenue =

market price

in perfect competition, the firm's marginal revenue always equals the

price; output level

in perfect competition, firms cannot decide the _ but can decide its _

MR=MC or when change in profit = 0

profit is maximized when

downward

market demand curve is _ sloping

upward

market supply curve is _ sloping

horizontal

the firm's demand curve is

perfectly elastic

a horizontal demand curve illustrates a _ demand

break-even point

when firms make zero economic profit

increases

if MR > MC, economic profit _ if output increases

decreases

if MR < MC, economic profit _ if output increases

maximized

if MR = MC, economic profit is

TC - TR, or Q x (ATC - P)

economic loss =

TC > TR, or ATC > P

firms incur a loss if

firm shuts down

if AVC > P, then

firms keep producing

if AVC < P, then

Q > 0

when P > AVC,

Q = 0

when P < AVC,

shutdown point

the price and quantity at which it is indifferent between producing output and shutting down

minimum AVC

the shutdown point is at

MC curve crosses the AVC curve

the shutdown point is where

fixed cost

at the shutdown point, the firm is indifferent between producing and shutting down temporarily. the firm incurs a loss equal to the

market supply curve

shows the quantity supplied by all firms at each price when each firm's plant and the number of firms remain the same in the short run

price = ATC

breakeven point is when

economic profit

there is _ when price exceeds ATC

negative profit

there is _ when price is less than ATC

short run equilibrium

in _ a firm might make an economic profit, break even, or incur an economic loss

long run equilibrium

in _ firms only break even because firms can enter or exit the market freely

zero economic profit

in the long run, firms in the perfect competition market will only make

Q x (P-ATC)

profit =

Q x (ATC - P)

loss =

P = ATC = MC

zero economic profit when

ATC and MC

when a new technology becomes available, the _ and _ curves shift downward

new technology

firms that use _ make economic profit

demand = MSB

consumers are efficient when

supply = MSC

producers are efficient when

MSB = MSC

at market equilibrium,