Economics, chapter 23 – Flashcards

the environ. of a firm whose characteristics influence the firms pricking and output decisions

a theory of market structure based on 4 assumptions: 1. more sellers than buyers 2. sellers and homogenous good 3. buyers and sellers have all relevant info. 4. entry into or exit from the market is easy

a seller that does not have the ability to control the price of the product it sells; the seller takes the price determined in the market

the change in total revenue that results from selling one additional unit of output

profit is maximized by producing the qunatity of output at which MR=MC

the situation in which firms produce the quantity of output at which price equals marginal cost

the portion of the firms marginal cost curnve that lies above the avg. variable curve

horiz. addition of all exiting firms short-run supply curves

P=MC-SRATC=LRATC. Economic profit is zero, firms are producing the qunatitiy of output at which price is equal marginal cost, and nor firm as an incentive to change its plant size

the situation in which a firm produces its output at the lowest possible per unit cost

graphic rep. of the quantitites of output that the industry is prepared to supply at different prices after the entry and exit firms are completed

average total costs do not change as industry output increases or decreases when firms enter or exit the industry

an ind. where avg total costs rise as output rises and decreases as output decreases when firms enter and exit the industry

an industry in which average total costs drop as outpit risess and rise as output falls when firm enter and exit the industry

1. economic profits will be squeezed out of the industry in the long run by the entry of new firms; that is zero economic profit exists in the long run 2. in equilibrium, firms produce the quantity of output at which price equals marginal cost. 3. in the short run, firms will stay inbusiness as long as price covers avg variable costs 4. in the long run, firms will stay in business as long as price cover averge total costs 5. in the short run, an increase in demand will lead to a rise in price; whether the price in the long run will be higher than, lower than, or equal to its original level depends on wheteher the firm is an increasing, decreasing, or constant-cost industry

is a price taker sells its product only atht ehmarket-established equilivrium price horizonta (flat, perfectly elastic) demand curve. Its demand curve and its marginal revenue curve are the same

price taker sells its product only at the market established equilb. price maximizes profits by prod. the qunatity of output at which MR=MC price=MR resource allocative efficient because it produces the quantity of output at which P=MC

if P is greater than ATC, the firm earns economic profits and will continue to operate in the short run If P is less than AVC, the firm takes losses. It will shut down because of the alternative increases the losses If ATC is greater than P which is greater than AVC, the firm takes losses. Nevertheless it will continue to operate in the short run because the alternative icreases thelosses The firm produces inthe short run only when price is greater than the averge variable cost. Therefore, the portion of its marginal cost curve that lies above the average variable cost curve is the firm's short-run supply curve

exists when there is no incentive for firms to: enter or exit the industry to produce more or less output to change plant size