Chapter 12: Competition and The Invisible Hand

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7 Terms

1

Elimination principle

The principle that in a competitive market, above normal profits are eliminated by entry and below normal profits are eliminated by exit.

Above normal profits are temporary

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2

Invisible Hand Property 1

By producing where P = MC, profit seeking behavior results in the minimization of the total industry costs of production.

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3

Invisible Hand Property 2

Entry and exit decisions work to ensure that labor and capital move across industries to balance production so that the greatest use is made of our limited resources.

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4

What does a marginal cost curve look like?

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5

When do firms enter a market?

When firms are making a profit

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6

When should firms exit the market?

When firms are making losses, 0 profit.

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7

Where are profits maximized?

When MC=MR

<p>When MC=MR</p>
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