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principle of increasing opportunity cost
cost of producing an additional unit of a good increases as the production of that good increases
profit
total revenue - total cost
*total cost includes explicit and implicit costs
(P - ATC) x Q
standardized products
identical goods offered by many sellers
no loyalty to your supplier
many buyers and sellers
each has small market share
no buyer or seller can influence price
price takers
mobile resources
inputs move to their highest value use
firms enter and leave industries
informed buyers and sellers
buyers know market prices
sellers know all opportunities and technologies
market supply and demand
these set the price for each product
market price
a perfectly competitive firm can sell all it wants at the _______
imperfectly competitive firms
have some control over price
some similarities to perfectly competitive firms
perfectly elastic
an individual firm’s demand curve is _____ if the firm operates in perfect competition
production
converts inputs into outputs
technology
recipe for production
factor of production
input used in the production of a good or a service (ex: land, labor, capital, and entrepreneurship
short run
period of time when at least one of the firm’s factors of production is fixed
long run
period of time in which all inputs are variable
variable factors
can be changed in the short run
fixed factor
cannot be changed in the short run
law of diminishing returns
when some factors of production are fixed, increased production of the good eventually requires even larger increases in the variable factor
low levels of production
the law of diminishing returns may not hold at ______
fixed cost
sum of all payments for fixed inputs
often referred to as the capital cost
variable cost
sum of all payments for variable inputs
the total labor cost and other variable inputs
total cost
sum of all payments for all inputs
fixed cost + variable cost
marginal cost
change in total cost / the change in output
increase output
if marginal benefit is at least as great as the marginal cost
decrease output
if marginal benefit is greater than marginal cost
market price = marginal cost
competitive firm produces where ______
continue to operate
if losses are less than if you shut down
if firm’s revenue is at least as much as the variable cost for the quantity where P = MC
shut down
if losses are less than if you continue operating
if revenue is less than variable cost
all fixed costs
if the firm shuts down in the short run, it loses ______
most a firm can lose
average variable cost (AVC)
VC / Q
shut down if price is less than this
average total cost (ATC)
TC / Q
firm is profitable if price is greater than this
greater
a firm is profitable if total revenue is ______ than its total cost
(P - ATC)
profit per unit of output
positive
short-run marginal cost curves have a _____ slope
long-run supply curves
flat, upward sloping, or downward sloping
technology
more output, fewer resources
input prices
decreases costs
number of suppliers
more suppliers in the market
expectations
lower prices in the future
price of other products
lower prices for alternative products
