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Price-Taking Producer
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a producer whose actions have no effect on the market price of the good or service it sells.
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Price-Taking Consumer
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A consumer whose actions have no effect on the market price of the good or service he or she buys
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Perfectly Competitive Market
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A market in which all market participants are price-takers.
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Perfectly Competitive Industry
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An industry in which producers are price takers.
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Market Share
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The producers fraction of the total industry output accounted for by that producers output.
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Standardized Product
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When consumers regard the products of different producers as the same good.
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Commodity
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Another word for Standardized Product; when consumers regard the products of different producers as the same good.
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Free Entry and Exit
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When new producers can easily enter into an industry and existing producers can easily leave that industry.
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Total Revenue
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Price x Quantity = ?
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Profit
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Total Revenue - Total Cost = ?
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Marginal Revenue
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The change in total revenue generated by an additional unit of output. (change in revenue/change in output)
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Optimal Output Rule
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States that profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost.
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Profit is maximized
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When marginal revenue is equal to marginal cost.
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Marginal Cost
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Change in Total Cost / Change in quantity - ?
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Net Gain
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Marginal Revenue - Marginal Cost = ?
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Price-Taking Firm's Optimal Output Rule
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States that a price-taking firm's profit is maximized by producing the quantity og output at which the market price is equal to the marginal cost of the last unit produced.
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Market Price, Marginal Cost
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To maximize a price-taking firm's profits, produce the quantity of output at which ____ _____ is equal to ______ _____of the last unit produced. (P=MC)
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Marginal Revenue Curve
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Shows how marginal revenue varies as output varies.
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P = MR = MC
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The optimal point, or the profit maximizing quantity, of a price-taking firm is equal to
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Profitable.
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If the firm produces a quantity at which TR > TC, the firm is
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Breaks even
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If the firm produces a quantity at which TR = TC, the firm
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Incurs a loss
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If the firm produces a quantity at which TR < TC, the firm
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Profitable
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If the firm produces a quantity at which P > ATC, the firm is
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Breaks even
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If the firm produces a quantity at which P = ATC, the firm
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Incurs a loss
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If the firm produces a quantity at which P < ATC, the firm
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Proft
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(Price - Average Total Cost) x Quantity = ?
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P = ATC = MC
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The Minimum-cost out and the minimum average total cost are found where?
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Price, Minimum average total cost.
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When the _____ exceeds the _______ ______ ______ ____, or the break even price, the firm is profitable.
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Market price, break even price
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The profit amount, if earned, is found between the _____ ____ and the ____ _____ _____.
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Break-Even Price
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For a price-taking firm, the market price at which it earns 0 profit. (Economic Profit)
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Cannot, is not
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Fixed costs (can/cannot) be changed in the short run and therefore the fixed cost (is/is not) relevant to a firm's decision about whether to produce or to shut down in the short run.
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Market Price
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If the _____ _____ exceeds the minimum ATC, the producer is profitable
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Market price equals minimum ATC
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A producer breaks even when
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Unprofitable
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If the market price is less than the minimum ATC, the producer is
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Shut-Down Price
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A firm will cease production in the short run if the market price falls below the ____-____ price, which is equal to the minimum average variable cost
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Price, minimum average variable cost
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If ____ > then ____ ______ ______ ____, the firm should produce in the short run.
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Marginal Cost
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Where the minimum AVC and the ______ ____ curve cross is known as the 'shut-down price'
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Producing
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If the price lies between the minimum ATC & the minimum AVC, the firm is better off
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Short-Run Individual Supply Curve
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Shows how an additional producer's profit maximizing output quantity depends on the market price, taking fixed costs as given
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Fixed Costs
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In the long run, a producer can always eliminate ____ _____ by selling off its plant and equipment
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False; P > minATC
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T/F - If P < minATC, the firm will be profitable and enter industry in long-run.
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True
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T/F - if P = minATC, the firm breaks even, & no entry or exit from industry in the long run.
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Cover variable costs and some fixed costs.
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If The price is between the minAVC and the shut down price, the firm will
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Will
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If P > minAVC, the firm (will/will not) produce in the short run.
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Indifferent
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If P = minAVC, firms are _____ between producing in the short run or not and just cover the variable cost.
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Does not
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If P < minAVC, the firm shuts down in the short run and the firm (does/does not) cover the variable costs.
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Industry Supply Curve
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Shows the relationship between the price of a good and the total output of the industry as a whole.
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Short-Run Industry Supply Curve
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Shows how the quantity supplied by an industry depends on the market price given a fixed number of producers
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Short-Run Market Equilibrium
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When the quantity supplied equals the quantity demanded, taking the number of producers as a given.
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Enter
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If the market price is above the break even price, or the minimum ATC of production, firms will (enter/exit) is industry.
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Increase, Larger number of firms in industry
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When new firms enter the industry, the result is a lower market price and firms will respond by reducing their output, but total industry output will (increase/decrease) because of...?
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Shifts to the right
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When new firms enter the industry, the supply curve ...
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Long-Run Market Equilibrium
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A situation when the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur
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1) a rightward movement up along the MC curve 2) increase in price and profit
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The response of an existing firm to the increase of demand is (2)
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a reduction in price, output, and profit
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The response of existing firms to new entrants to the industry is
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Short-run
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_____-___ response to an increase in demand is an increase in output and the movement of the industry output along the short-run supply curve
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Long-run
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____-___ response to an increase in demand is the increase of output by new firms, and the rightward shift of the short-run supply curve.
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Long-run Industry Supply Curve
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Shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry.
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Elastic
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The long-run industry supply curve is always more (elastic/inelastic) than the short-run industry supply curve.
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Higher
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The long-run price elasticity of supply is (higher/lower) than the short-run price elasticity whenever there is free entry or exit.
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True
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T/F - In a perfectly competitive industry in equilibrium, the value of marginal cost is the same for all firms.
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False, 0
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T/F - In a perfectly competitive industry with free entry and exit, each firm will have $500 economic profit in the long-run equilibrium
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True
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T/F - The long-run market equilibrium of a perfectly competitive industry is efficient; no mutually beneficial transactions go unexploited & costs are minimized, plus resources are not wasted.
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that firms attempt to maximize their total revenue.
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The perfectly competitive model assumes all of the following except:
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$10
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If a perfectly competitive gardening shop sells 30 evergreen bushes at a price of $10 per bush, its marginal revenue is:
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Shut down
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A perfectly competitive small organic farm that produces 1,000 cauliflower heads in the short run has an ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. In order to maximize profits (or minimize losses), this farm should:
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Marginal cost curve, shut down
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The short-run supply curve for a perfectly competitive firm is the _____ ____ _____ above the ____ ____ price.
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Increase
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A decrease in production costs for firms in a perfectly competitive market will cause an (increase/decrease) in firms' marginal revenue.
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