Microeconomics chapter 6 part 1

What is a “Price Taker”?

A seller who cannot influence the market price and must accept the market price!

What conditions define a perfectly competitive market?

• - Mant sellers (& buyer)

• - Identical (standardized products)

• - Price takers

• - Free entry & exit

What is the seller’s main goal?

Maximize profit!

What 3 problems must sellers solve?

1. 1. how to make the product (Production)

2. 2. what is the cost of making the product (Cost)

3. 3. How much they can get for the product (Revenue)

What is a production function?

The relationship between quantity of inputs used & quantity outputs produced.

What is firm?

Any business entity that produces & sells goods and services

What is “production”?

The process of transforming inputs into outputs.

Inputs = things you use Outputs = things you make

Ex: Flour, sugar, etc. are inputs, cupcakes are the outputs

Production function itself

Inputs → Production function → Output

Examples of inputs

-Physical Capital: any good, including machines and
buildings used production (Oven, kitchen)

- Labor (the ppl who make the cake)