Microeconomics Chapter 14 “Firms in Competitive Markets”

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

1. There are many buyers and many sellers in the market
2. The goods offered by the various sellers are largely the same
3. Firms can freely enter or exit the market

total revenue divided by the quantity sold

the change in total revenue from selling one more unit

upwards sloping

U-shaped

1. If marginal revenue is greater than marginal cost, the firm should increase its output
2. If marginal cost is greater than marginal revenue, the firm should decrease its output
3. At the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal

a short-run decision not to produce anything because of market conditions

a long-run decision to leave the market

must pay fixed cost in during shutdown, zero costs in exit

the revenue lost (total revenue)

the costs saved (variable cost)

a cost that has already been committed and cannot be recovered

revenue lost (total revenue)

the costs saved (total costs)

1. All existing firms and potential entrants have identical costs
2. Each firm's costs do not change as other firms enter or exit the market
3. The number of firms in the market is fixed in the short run, variable in the long run

The process of entry or exit is complete when the remaining firms earn zero economic profit