AREC final - Perfect competition

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10 Terms

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1 Many sellers

2Homologus products

3each firm has a small share of sales

4info is free

5ther is freedom of entry and exit

5 conditions of Perfectly competitive market

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Price taker

a Perfectly competitive firm is know as a ____ because it can only react to market price

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Perfectly elastic (Horizontal line)

The demand curve of a single firm is ______, being equal to the price set by the market

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Marginal Revenue (MR)

extra revenue from selling an additional unit of a good

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ΔTR/ΔQ

MR=

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Maximize profit

in the short run a firm’s sole goal is to

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(Price per unit)x(output sold)=(P-AC)xQ

Total profit=

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The intersection of MR and MC (when =)

The profit maximizing point comes at

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P<AVC

The shutdown point is _____ when a firm is not covering variable costs

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Long run competitive euqilibrium

Economic profit= 0

price = minimum possible overage cost

of demand or input prices change, market temporarily not in equilibrium