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entry
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the long-run process of firms entering an industry in response to industry profits
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exit
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the long-run process of firms reducing production and shutting down in response to industry losses
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long run equilibrium
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where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC
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marginal revenue
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the additional income from selling one more unit of a good; sometimes equal to price. For competitive firms marginal revenue equals the price of the good. MR=P
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Recall our "Usual Optimality Condition"
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"Do a thing if the marginal benefit of doing that thing is greater than the marginal cost of doing that thing"
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What is the general profit maximizing golden rule under perfect competition?
answer
P= MC
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sunk cost
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A cost that has already been paid and can not be recovered
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For any given price, what does the marginal cost curve show?
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Fo any given price, the marginal cost curve shows the quantity of output that a firm will supply. Therefore, the perfectly competitive firms marginal cost curve is also its supply curve- but only for prices at or above average variable cost.
question
Even if a firm in a competitive market suffers losses it should continue to operate as long as...
answer
P > AVC, Profit is greater than average variable cost
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What is the shutdown point for a firm in a competitive market?
answer
P < AVC , The minimum point on a firm's average variable cost curve; if the price falls below this point the firm shuts down production in the short run.
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market structure
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the conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold
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perfect competition
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each firm faces many competitors that sell identical products
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price taker
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a firm in a perfectly competitive market that must take the prevailing market price as given
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shutdown point
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level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price is below this point, the firm should shut down immediately
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What make for a firm in a competitive market making a maximum profit?
answer
MC being greater than the ATC at the profit maximizing level of output.
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What make for a firm in a competitive market breaking even?
answer
MC=ATC, Marginal Cost being equal to Average Total Cost at the profit maximizing level of output.
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What make for a firm in a competitive market making a loss?
answer
The ATC > MC on the curve
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What are the two choices in the short run a firm suffering from losses has?
answer
1. Continue to produce
2. Stop production by shutting down temporarily
2. Stop production by shutting down temporarily
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How do you calculate total profit for a firm in a competitive market?
answer
Total Profit = (P-ATC)xQ
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True of False: It is likely that firms in a perfectly competitive environment will earn economic profits in the long run?
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True
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True of False: if Revenue covers the firm's variable costs, but not variable costs+fixed costs, it should continue to operate in the short-run.
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True
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True of False: The short-run supply curve for a PC firm is the firm's MC curve below AVC
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False
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True of False: the demand curve for a PC firm's product is perfectly inelastic.
answer
True
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If a PC firm is producing at an output level where MR<MC, then the firm is: (a) is incurring a loss (b) can increase its profits by lowering output (c) would reduce its profits by lowering output (d) is earning positive economic profits
answer
(a) is incurring a loss
question
For price discriminating monopolies
answer
D=MR
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