ECON0100 MT 2: Perfect Competition

fixed costs

in the short run, _____ _____ are not avoidable

avoidable

in the long run, fixed costs become _______

firms

in the long run, the number of _____ can change through entry/exit

0

When q=0, FC=0, and profit =

demand

in the long run the ______ changes

sunk/fixed

In the short run, the firm can't recover _____/_____ costs even it if shuts down

TR > VC or P > AVC

a firm should only operate (q>0) if ....

TR - TC

short run: if the firm operates (q>0), then the profit =

- FC

short run: if the firm shuts down (q=0), then the profit =

P = ATC AND MR = MC

long run equilibrium is achieved when

long run equilibrium

Stable situation where the number of firms stops changing. Firms are still maximizing profit, it just happens to be when π = 0

positive

in the long run, firms with enter if the market has _____ short-run profits

decreases elastic

As more firms enter the market in the long run, each firm's demand ______ (flatter) and becomes more ________

zero

Entry continues until profits are ______ (or until demand is tangent to ATC curve)

negative

Markets with ______ short-run profits will make some existing firm exit

negative profits

If ATC curve is above demand everywhere

increases inelastic

During long run exit, each remaining firm's demand ______ (steeper) and becomes more _______

profit and producer surplus

at a firm's equilibrium it is maximizing its ____ and ________

pareto efficient

there is no potential transaction that will make someone better off without making someone else worse off

deadweight loss

loss in total surplus compared to the maximum total surplus

not

Equilibrium does _______ equal efficiency

MB = MC

efficiency

total surplus

maximum ______ ______ is found at the q such that MB = MC. it is at the efficent quantity

profit and PS

maximum _____ and ____ is found at q such that MR = MC

(P-MC)/P

measure of market power, mark up

more

more inelastic demand equals _____ market power

mark-up

fewer substitues = less elastic demand = steeper demand = higher

larger

more inelastic demand = ____ DWL

perfect competition

a market structure in which a large number of firms all produce the same product, each firm's demand is perfectly elastic (horizontal)

no

in perfect competition does the firm have mark-up or market power?

price takers

perfect competition firms are _____ ________; buyers and sellers must accept the price the market determines

MR = P = Demand

in perfect competition what is the relationship between MR and others

D = MR = MB

only in perfect competition demand is equal to ___ and ____

both

in perfect competition firm is producing at _____ efficiency and profit maximizing quantity

supply

the quantity supplied rises when the price rises

increase

more sellers = ____ supply

no change

↑ FC, no change in MC, _____ _______ in supply

decreases

↑ VC, ↑ MC (shifts up), supply _________

increases

↓ Wage, ↓ VC, ↓ MC, supply ______

price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good

positive

price elasticity of supply is always _____ because supply is upward sloping

elastic supply

ES > 1, %Δ QS > %Δ P, graph starts from y intercept

inelastic supply

ES < 1, %Δ QS < %Δ P, graph starts from x intercept

unit elastic supply

ES = 1, %Δ QS = %Δ P, graph starts from origin

market clear

anyone who wants to buy, buys

QD > QS

excess supply, surplus

QD < QS

demand, shortage

decrease demand

↓ P and ↓ Q

increase demand

↑ P and ↑ Q

decrease supply

↑ P and ↓ Q

increase supply

↓ P and ↑ Q

P = Minimum ATC

long run equilibrium