Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

25 Cards in this Set

  • Front
  • Back
  • 3rd side (hint)
Perfect Competition exists when:
-many firms sell an identical product to many buyers
-there are no restrictions on entry or exit to the market
-established firms have no advantage over new firms
- sellers and buyers are well informed about prices
A price taker is:
someone who cannot influence price of its product.
Which market type is a price taker?
perfect competition
Economic profit =
total revenue - total cost of production
Marginal revenue is
the change in total revenue that results from a one unit increase in quantity sold.
In the long run, a firm in perfect competition earns:
Normal profit.
What is normal profit?
Zero economic profit and zero economic loss in the long run.
What is an incentive for new firms to enter perfect competition (or a market)?
Economic profit
What happens as new firms enter the market in perfect competition?
The price falls and economic profit of each existing firm decreases.
What is an incentive for firms to leave the market in perfect competition?
Economic loss
What happens as firms exit the market in perfect competition?
the price rises and the economic loss of each remaining firm decreases.
What are external economies?
Factors beyond control of an individual firm that lower its costs as the market output increases.
The change in the long run equilibrium price depends on what?
External economies and external diseconomies.
External diseconomies?
factors outside the control of a firm that raise the firms's costs as market output increases.
What is the long run market supply curve:
shows the relationship b/w the quantity supplied and the price as the number of firms adjusts to achieve zero economic profit.
What is the shut down point in perfect competition?
the output and price at which price equals minimum average variable cost.
What is a monopoly?
arises when one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms.
What is Monopolistic competition?
when a large number of firms compete by making similar but slighty different products.
nike, fila, reebock..
when a small number of firms compete. Can produce almost identical products or differentiated products.
airplane manufacturer, kodak and fuji
People in perfect competition face what kind of demand?
perfectly elastic b/c the other firms have perfect subsitutes.
Profit is maximized how?
At the output level at which total revenue exceeds total cost by the largest amount.
Because of __________, total cost eventually increases faster than total revenue.
Decreasing marginal returns
In perfect competition, on a graph, economic profit is...
the vertical distance b/w the total cost and total revenue curves.
In perfect competition, marginal revenue equals...
The market price
In perfect competition, profit is maximized when
marginal cost equals marginal revenue.