Perfect Competition Ch 14

0.0(0)
studied byStudied by 0 people
learnLearn
examPractice Test
spaced repetitionSpaced Repetition
heart puzzleMatch
flashcardsFlashcards
Card Sorting

1/23

flashcard set

Earn XP

Description and Tags

Flashcards about Firms in Perfectly Competitive Markets

Study Analytics
Name
Mastery
Learn
Test
Matching
Spaced

No study sessions yet.

24 Terms

1
New cards

Perfectly Competitive Market

A market with many buyers and sellers, homogeneous goods, and free entry and exit for firms.

2
New cards

Perfect Competition Characteristic

The actions of any single buyer or seller in the market have a negligible impact on the market price

3
New cards

Average Revenue (AR)

Total revenue divided by the quantity sold, indicating how much revenue a firm receives for a typical unit sold. AR = TR/Q = PQ/Q = P in perfectly competitive markets

4
New cards

Marginal Revenue (MR)

The change in total revenue from an additional unit sold. It's the slope of the total revenue function. MR = change in TR/change in Q

5
New cards

Marginal Revenue in Perfect Competition

For a perfectly competitive firm, marginal revenue equals the price of the good (MR = P).

6
New cards

Profit Maximization Rule

A firm maximizes profit by producing the quantity of output where marginal revenue equals marginal cost (MR = MC).

7
New cards

Production in Perfect Competition

In perfect competition, a firm will produce where price equals marginal cost (P = MC).

8
New cards

Firm's Short-Run Supply Curve

The portion of the marginal cost (MC) curve that lies above the minimum average variable cost (AVC).

9
New cards

Short-Run Shutdown Decision

A firm will shut down in the short run if the price is less than the average variable cost (P < AVC).

10
New cards

Sunk Costs

Costs that have already been committed and cannot be recovered. They are irrelevant when deciding whether to shut down.

11
New cards

Demand Curve in Perfect Competition

The firm's demand curve is perfectly elastic

12
New cards

Perfect Competition Demand Curve

The individual firm's demand curve in a perfectly competitive market is precisely the price level! P = AR = MR = D

13
New cards

Positive Economic Profit

When price is greater than average total cost (P > ATC).

14
New cards

Negative Economic Profit (Loss)

When price is less than average total cost (P < ATC).

15
New cards

Zero Economic Profit (Normal Profit)

When price equals average total cost (P = ATC).

16
New cards

Breakeven Point

Occurs where price equals the minimum average total cost (P = min ATC).

17
New cards

Long-Run Exit Decision

A firm will exit an industry if price is less than the minimum average total cost (P < min ATC).

18
New cards

Long-Run Entry Decision

A firm will enter an industry if price is greater than the minimum average total cost (P > min ATC).

19
New cards

Long-Run Equilibrium

When there is no entry into or exit out of the industry.

20
New cards

Long-Run Equilibrium Conditions

Firms maximize SR profits such that P = SR MC, Profit = 0 so there’s no entry or exit, so P = min SR ATC, LRAC is at a minimum, so P = min LRAC, Firms produce at efficient scale.

21
New cards

Market Supply

Market supply equals the sum of the quantities supplied by the individual firms in the market.

22
New cards

Total Revenue

The total income a firm receives from selling its goods or services, calculated by multiplying the price per unit by the quantity sold. TR = P x Q

23
New cards

Profit (Perfectly Competitive Market)

The difference between total revenue and total costs. In a perfectly competitive market, profits are maximized when marginal cost equals marginal revenue, leading to zero economic profit in the long run.

24
New cards