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25 Cards in this Set
- Front
- Back
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Perfect Competition
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A market structure in which the decisions of individual buyers and sellers have no effect on market price
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Perfectly Competitive Firm
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A firm that is such a small part of the total industry that it cannot affect the price of the product or service that it sells
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Price Taker
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A competitive firm that must take the price of its product as given because the firm cannot influence its price
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Price Taker Characteristics:
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–A firm can sell as much as wants at the going market price.
–There is no incentive to sell for a lower price. –Attempts to charge a higher price will result in no sales. |
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Perfect Competition Characteristics:
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–Large number of buyers and sellers
–Homogenous products • When you buy a head of lettuce do you ask what farm it came from? –No barriers to entry or exit –Buyers and sellers have equal access to information |
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Economic profit =
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total revenue (TR) -total cost (TC)
–The price per unit times the total quantity sold |
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P is determined by the ------ in perfect competition
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market
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Q determined by the -------- to ----------
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producer/maximize profit
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Marginal Revenue
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the change in total revenue divided by the change in output
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Marginal Cost
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the change in total cost divided by the change in output
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Profit-maximizing output occurs when --------
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MC = MR
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Short-Run Break-Even Price
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–The price at which a firm’s total revenues equal its costs
–At the break-even price, the firm is just making a normal rate of return on its capital investment |
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Short-Run Shut Down Price
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–The price that just covers average variable costs
–It occurs just below the intersection of the marginal cost curve and the average variable cost curve |
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The Industry Supply Curve
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–The locus of points showing the minimum prices at which given quantities will be
forthcoming |
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Factors that influence the industry
supply curve (determinants of supply) |
–Firm’s productivity
–Factor costs –Taxes and subsidies –Number of firms |
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In the long run, the perfectly competitive firm will-------
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make zero economic profits (a
normal rate of return) |
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Long-Run Industry Supply Curve
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–A market supply curve showing the
relationship between price and quantities forthcoming after firms have been allowed time to enter or exit from an industry |
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Constant Cost Industry
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An industry whose total output can be
increased without an increase in long-run per-unit costs • Horizontal long-run supply curve |
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Increasing Cost Industry
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An industry in which an increase in
industry output is accompanied by an increase in long-run per unit costs • Upward-sloping long-run supply curve |
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Decreasing Cost Industry
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An industry in which an increase in
industry output leads to a reduction in long-run per-unit costs • Downward-sloping long-run supply curve |
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Marginal Cost Pricing
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A system of pricing in which the price charged is equal to the opportunity cost to society of producing one more unit of the good or service in question
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Market Failure
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A situation in which an unrestrained
market operation leads to either too few or too many resources going to a specific economic activity |
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How does a perfectly competitive firm
decides how much to produce |
Economic profits are maximized when
marginal cost equals marginal revenue above minimum average variable cost |
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The short-run supply curve of a perfectly competitive firm
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The rising part of the marginal cost curve above minimum average variable cost
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The equilibrium price in a perfectly
competitive market: |
A price at which the total amount of output supplied by all firms is equal to the total amount of output demanded by all buyers
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