question
What are the characteristics of a perfectly competitive market?
answer
many buyers and many sellers, the goods offered by the various sellers are largely the same, firms can freely enter or exit the market
question
What are the characteristics of a perfectly competitive firm?
answer
tried to maximize profit
question
How do you calculate marginal revenue?
answer
the change in total revenue divided by the change in quantity
question
Where does a firm maximize profit?
answer
where marginal revenue is equal to marginal cost (marginal revenue must exceed marginal cost)
question
Where does a firm minimize losses?
answer
where MR = MC (if P is less than ATC, then the firm is losing money)
question
How do you solve for profit on a graph?
answer
Profit = Q (P - ATC)
question
How do you solve for profit maximizing quantity on a graph?
answer
where MC = MR
question
How do you solve for loss on a graph?
answer
Loss = Q (P - ATC)
question
What are the conditions for a firm remaining open?
answer
a short run decision to remain open and continue to produce when P is less that ATC but greater than AVC
question
What are the conditions for a firm shutting down?
answer
P < AVC (TR < VC)
question
What are the conditions for a firm exiting the market?
answer
P < ATC (TR < VC)
question
Describe the short run supply curve for a perfectly competitive firm.
answer
the portion of the marginal cost curve that is above average variable cost curve
question
Describe the long run supply curve for a perfectly competitive firm.
answer
the portion of the marginal cost curve that is above the average total cost curve
question
What happens to the market and firm in the long run if there is profit?
answer
more firms will enter the market and economic profit will move to zero
question
What happens to the market and firm in the short run if there is loss?
answer
firms will exit the market and economic loss will return to zero
question
What's the zero profit condition (long run equilibrium)?
answer
at the end of the process of firms entering and exiting the market, firms that remain in the market must be making zero economic profit
question
Why is a perfectly competitive market efficient?
answer
firms will produce where P = MC because this will maximize their profits
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