Exam Preparation for Competitive Markets in Economics

These flashcards cover key concepts from the lecture on competitive markets in economics, focusing on market characteristics, firm behavior, and profit maximization.

What is a competitive market characterized by regarding buyers and sellers?

Each buyer and seller is small compared to the market.

In a competitive market, how does the action of a single buyer or seller impact market prices?

It has a negligible impact on the market price.

For a firm in a perfectly competitive market, how does the price relate to marginal revenue?

The price of the good is always equal to marginal revenue.

What happens to total revenue if a firm in a perfectly competitive market triples the number of units sold?

Total revenue will not more than triple.

What is the formula for profit for a competitive firm?

Profit = Total Revenue – Total Cost.

What indicates that a firm is at a profit-maximizing level of output?

Marginal Revenue equals Marginal Cost.

When is a firm in a competitive market likely to shut down in the short run?

When total revenue is less than variable costs.

What is the exit criterion for a profit-maximizing firm in the long run?

Price must be less than average total cost.

How does marginal cost relate to variable costs when a firm decides to shut down?

Marginal cost is above average variable cost.

What does long-run supply curve behavior indicate in a competitive market?

Firms can enter and exit the market more easily.