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9 Cards in this Set
- Front
- Back
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Perfect Competition
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1) Many firms
2) Each firm sells a homogenous product 3) No control over market price (firms are price takers) 4) No barriers to entry/exit |
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Firms are price takers
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The demand curve facing each individual firm is perfectly elastic
MR = P |
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Firms maximize profit by producing the output at which
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MR = MC
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Profit = TR – TC = (P – ATC)*Q
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1) If P > ATC, the firm earns a profit.
2) If P < ATC, the firm is incurring a loss 3) If P = ATC, the firm breaks even. |
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A firm shuts down if
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P < minimum AVC
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shutdown point
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P = AVC
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In the long-run, economic profits are_____
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zero
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Marginal Revenue Product (MRP)
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MRP = dTR/dL = MR(MP) = MP x P
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The profit maximizing input level, L*, is found where
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MRP = w
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