Perfect Competition

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6 Terms

1
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<p>What is short run loss and how does it happen?</p>

What is short run loss and how does it happen?

When MC(where MR = MC) < ATC but MC > AVC

Continue producing since FC can still be paid, and AVC can be lowered until there is profit

2
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What is a short run shutdown and how does it happen

When MC(where MR = MC) < AVC

Stop producing since FC can’t be paid no matter what, since FC doesn’t change

<p>When MC(where MR = MC) &lt; AVC</p><p>Stop producing since FC can’t be paid no matter what, since FC doesn’t change</p>
3
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Market and Firm Profit is maximized when?

At the quantity where the MC = MR(or sometimes the last quantity where MC < MR

<p>At the quantity where the MC = MR(or sometimes the last quantity where MC &lt; MR</p>
4
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What is short run profit and how does it happen?

When MC(where MR = MC) > ATC

Keep producing as you are gaining money

<p>When MC(where MR = MC) &gt; ATC</p><p>Keep producing as you are gaining money</p>
5
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Compare a SR(short run) single firm perf comp equilibrium to an industry equilibrium

Both caused by meeting of S(MC in single firm) and D(MR in single firm) curves

But in single firm equilibrium demand can not change, in industry supply and demand can change equilibrium

<p>Both caused by meeting of S(MC in single firm) and D(MR in single firm) curves</p><p>But in single firm equilibrium demand can not change, in industry supply and demand can change equilibrium</p>
6
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<p>What is a break-even point?</p>

What is a break-even point?

Where MC=MR is = ATC

No profit, meaning firm can’t do any better, so it should continue to produce