Economics Lecture on Producers and Market Equilibrium

These flashcards cover key concepts and details from the lecture on economics, focusing on producers, market equilibrium, and preparation for the mid-trimester test.

What is the profit-maximizing level of output for firms?

Where marginal revenue equals marginal cost.

In perfect competition, how do firms set their price?

Price is set equal to marginal cost.

What happens when the marginal cost is greater than the price?

Profit can be increased by producing less.

What is the relationship between price and average total cost at optimal production?

At optimal production, price equals average total cost, leading to zero economic profit.

What do we call the long run average cost curve that represents increasing returns to scale?

Economies of scale.

What are the three scenarios that can occur when analyzing prices and costs in the short run?

1. Price greater than average total cost (profit); 2. Price less than average total cost but greater than average variable cost (loss); 3. Price less than average variable cost (shutdown).

What is the equilibrium in a market?

It is the point where quantity demanded equals quantity supplied.

What does elasticity of demand measure?

The responsiveness of quantity demanded to a change in price.

What type of demand has an elasticity of zero?

Perfectly inelastic demand.

What happens to the supply curve when new firms enter a profitable industry?

The supply curve shifts to the right.

What is the relationship between firms in perfect competition and economic profits in the long run?

In the long run, firms earn zero economic profits.