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### 15 Cards in this Set

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 When a competitive firm doubles the amount it sells, what happens to the price of its output and its total revenue? The price of its output stays the same, but the total revenue will double along side the price because TR=p*q. 2tr=2p*q How does the price faced by a profit-maximizing competitive firm compare to its marginal cost? Since a firm maximizes profit by producing output at marginal cost, the firm will produce where the marginal cost meets the price. When does a profit maximizing firm decide to shut down? A firm will decide to shut down when variable costs are greater than the total revenue. In other words, the firm will shut down if the market price is less than the firms avc. When does a profit-maximizing competitive firm decide to exit a market? A firm will exit a market if its total revenue is less than its total costs. In other words, if the price is less than the average total cost. In the long run with free entry and exit, is the price in a market equal to marginal cost, average cost, both, or neither? The price in the long run is not equal to mc or atc. The price in a market is perfectly eleastic, in most cases, because the free entry and exit tend to keep the price where profit = 0 Competitive Market a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker. in a perfectly competitive market, a firm can freely enter or ecit the market. average revenue tr/q. tells us how much a firm recieves for the typical unit sold. marginal revenue the change in total revenue from an additional unit sold. For a competitive firm, marginal revenue equals the price of the good sunk cost a sunk cost is a cost that cannot be considered. It is a cost that will be there regardless, and no decision will alter that cost. opposite of an opportunity cost- opportunity cost is a cost that you have to give up if you choose to do one thing instead of another, whereas a sunk cost is one that cannot be avoided. What is meant by a competitive firm? a competitive firm is a firm that is a price taker. The firm is not going to lower its price because it will not be maximizing profit, and it will not raise its price about market price because it will not sell any items. Under what conditions will a firm shut down temporarily? If a firms variable costs exceed its total revenue. At this point, if a firm chooses to produce, it will cost the firm more money to produce goods than not to produce goods. Since it is in the short term, the firm still incures fixed costs, so a firm must try to minimize losses by cutting out variable costs. Under what conditions will a firm exit a market? A firm will exit a market if the total costs exceed the total revenue. If the price per item is less than the Average total cost, the firm is losing money by staying open. A firm, in the long run, can sell fixed costs to recoup those, and must just cut and run to eliminiate incurring any additional variable costs. Does a firms price equal marginal cost in the short run, the long run, or both? A firms price will equal mc in both long run and short run because a competitive firm will always try to operate at the efficient scale. Does a firms price equal the minimum of average total cost in the short run, the long run, or both? in the long run, profit is always driven to zero. As a result, price always equals the minimum of average total cost. Are market supply curves typically more elastic in the short run or the long run? Firms can easily enter and exit in the long run. Because of this, the long-run supply curve is typically more elastic than the short run supply curve.