Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
14 Cards in this Set
- Front
- Back
|
three basic asumption for a perfectly competitive market
|
1. price taking
2. product homogeneity 3. free entry and exit |
|
|
price taker
|
frim that has no influence over market price and thus takes the price as given.
|
|
|
free entry (exit)
|
when there are no special costs that make it difficult for a firm to enter (or exit) industry
|
|
|
profit
|
difference between total revenue and total cost
|
|
|
marginal revenue
|
change in revenue resulting from a one unit increase in output
|
|
|
demand curve in a competitive market
|
demand curve facing an individual firm in a competitive market is both its average revenue curve and its marginal revenue curve. Along this demand curve, marginal revenue, average revenue,and price are all equal.
|
|
|
profit maximization by a competitive firm
|
a perfectly competitive firm should choose its output so that marginal costs equals price (MC (q) = MR = P)
|
|
|
output rule
|
if a firm is producing any output, it should produce at the level at which marginal revenue equals marginal cost.
|
|
|
shut-down rule
|
the firm should shut down if the price of the product is less than the average economic cost of production at the profit-maximizing output.
|
|
|
producer surplus
|
sum over all units produced by a firm of differences between the market price of a good and the marginal cost of production.
Producer surplus = R - VC Profit = R - VC - FC |
|
|
long run profit maximization
|
the long-run output of a profit-maximizing competitive firm is the point at which long-run marginal cost equals the price.
|
|
|
zero economic profit
|
a firm earning a normal return on its investment - i.e. it is doing as well as it could by investing its money elsewhere.
|
|
|
long-run competitive equilibrium
|
all firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded.
|
|
|
economic rent
|
amount that firms are willing to pay for an input less the minimum amount necessary to obtain it.
|
