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10 Cards in this Set
- Front
- Back
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•Eachfirm’s ____________ is its marginal cost (MC) curve.
competitive firm |
supply curve |
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•Supply shifts right and prices fall.
•Economic profits decrease, halting new entries. •The market stabilizes at a lower price, more producers, and zero economic profits. |
•Economicprofits draw in new firms.
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•Supply shifts left and prices rise.
•Economic losses decrease, halting new exits. •The market stabilizes at a higher price, fewer producers, and zero economic profits. |
•Economiclosses drive out firms. |
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•Many firms, all small relative to the industry.
•Identical products. •Perfect information. •Profit maximized at MC = P (= MR). •Low barriers to entry and exit. •Zero economic profit. These are market characteristics of __________________. |
Perfect Competition
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•The existence of economic profits in a low entry barrier market lures in new firms,which lowers the price of the product.•Firms compete by improving ____________ and ___________•Those who cannot compete this way leave the industry. Others flourish and expand.
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product quality lowering costs. |
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If Price is less than AVC.... |
exit the market |
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•Ifcompetition drives price below AVC for a firm, it will ______________ & ____________. |
shut down and exit the industry. |
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theuse of market prices and sales to signal desired outputs or resourceallocations |
market mechanism |
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What is allocative efficiency? |
•theindustry will end up producing the right output mix |
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Competitiondrives costs to _________________, and economic profits to _____________. |
minimum ATC zero |
