Chapter 11 - Managerial Decisions in Competitive Markets

Perfect competition

market structure that exists when (1) firms r price-takers, (2) all firms produce a homogeneous product, and (3) entry n exit r unrestricted

Perfectly elastic demand

hor demand facing a single, price-taking firm in a competitive market (abs(E) = infinity)

Shut down

firm produces 0 output in the SR but must still pay for fixed inputs

Profit margin

diff bw price n avf total cost: P - ATC

Average profit

total profit divided by quantity
Measures profit per unit n is equivalent to profit margin when all units sell for the same price

Break-even points

Output levels where P = ATC n profit equals 0

Shutdown price

price below which a firm shuts down in the short run (minimum AVC)

LR competitive equilibrium

condition i/w all firms r producing where P = LMC n economic profits r 0 (P = LAC)

Increasing-cost industry

industry i/w input prices rise as all firms in the industry expand output

Constant-cost industry

industry i/w input prices remain constant as all firms in the industry expand output

Economic rent

payment to a resource in excess of the resource's opportunity cost

Marginal revenue product (MRP)

additional rev earned when the firm hires 1 more unit of the input (MRP = change in TR/change in I)

Average revenue product (ARP)

avg rev per worker (ARP = TR/L)