question
Total revenue
answer
Price x Quantity
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marginal revenue
answer
MR=change in TR/change in Q
question
total cost
answer
fixed costs plus variable costs
question
marginal cost
answer
MC=change in TC/change in Q
question
average total cost
answer
total cost divided by the quantity of output
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economic profit
answer
total revenue minus total cost, including both explicit and implicit costs
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economic loss
answer
the situation in which a firm's total revenue is less than its total cost, including all implicit costs
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zero economic profit
answer
There is no economic profit. Said differently, accounting profit in every industry is the same. In a long run competitive equilibrium, there are zero economic profits.
question
Characteristics of perfect competition
answer
1. Many buyers and many sellers.
2. The goods offered for sale are largely the same.
3. Firms can freely enter or exit the market.
2. The goods offered for sale are largely the same.
3. Firms can freely enter or exit the market.
question
examples of markets of perfect competition
answer
agricultural
online shopping
online shopping
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output level that maximizes economic profit or minimizes economic loss
answer
profit=MR=MC
loss= MC<MR
loss= MC<MR
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profit-maximizing rule
answer
Profit is maximized by choosing the level of output such that MR=MC
Profit= (P - AVC) x Q
Profit= (P - AVC) x Q
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How should output change when MR > MC
answer
Increase
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How should output change when MR < MC
answer
Decrease
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The MC curve always
answer
leads (pulls) the ATC and AVC curves
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Operational rules
answer
short run
P<AVC=shutdown
AVC<P<ATC= operate at a loss
P>ATC=operate at a profit
P<AVC=shutdown
AVC<P<ATC= operate at a loss
P>ATC=operate at a profit
question
Competitive markets
answer
-many buyers and sellers
-similar goods
-firms and price takers
-free entry and exit
-similar goods
-firms and price takers
-free entry and exit
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Profit equation
answer
=(price - average total cost) x Q
question
P > ATC short-run outcome
answer
the firm makes a profit
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ATC > P > AVC short-run outcome
answer
the firm will operate to minimize loss
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AVC > P short-run outcome
answer
the firm will temporarily shut down
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P > ATC long-run outcome
answer
the firm makes a profit
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P < ATC long-run outcome
answer
the firm should shut down
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Sunk costs
answer
unrecoverable costs that have been incurred as a result of past decisions
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sunk cost fallacy
answer
Considering sunk costs when making new decisions at the margin
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Signals
answer
convey info about the profitability of various markets
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LR supply may be upward-sloping when
answer
aka long run
resources may be limited
opportunity costs of labor
resources may be limited
opportunity costs of labor
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In competitive markets,
answer
firms have no control over price
question
Profits and losses
answer
act as signals in a perfectly competitive market
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competitive markets
answer
serve as an ideal benchmark we can compare other market structures to
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