All Flashcards
What does the horizontal demand curve indicate?
The firm is a price taker and can sell any quantity at the market price.
What does the intersection of MC and MR indicate?
The profit-maximizing quantity for the firm.
How is short-run profit shown on a graph?
Price is above the ATC at the profit-maximizing quantity (MR=MC).
How is short-run loss shown on a graph?
Price is below the ATC but above the AVC at the profit-maximizing quantity (MR=MC).
How is the shutdown point shown on a graph?
Price is below both ATC and AVC at the profit-maximizing quantity (MR=MC).
What does the tangency of P and min ATC signify?
Long-run equilibrium, zero economic profit, and productive efficiency.
What does a shift in the market supply curve indicate?
It indicates a change in the number of firms or production costs in the market.
How does entry of new firms affect the firm's graph?
The firm's demand curve (price line) shifts down as market price decreases.
How does exit of firms affect the firm's graph?
The firm's demand curve (price line) shifts up as market price increases.
What does the side-by-side graph show?
It shows the relationship between the market and the individual firm, illustrating how the market price affects the firm's decisions.
Define Perfect Competition.
Market with many small firms, identical products, no barriers to entry/exit, and firms are price takers.
What are 'price takers'?
Firms that have no control over the market price and must accept the prevailing price.
Define 'Barriers to Entry'.
Obstacles that prevent new firms from entering a market.
What is 'Normal Profit'?
The minimum profit needed to keep a firm in business; zero economic profit.
Define 'Allocative Efficiency'.
Producing goods and services at the optimal quantity, where P = MC.
What is 'Productive Efficiency'?
Producing goods and services at the lowest possible cost, where P = min ATC.
Define 'Economic Profit'.
Total revenue less total cost, including both explicit and implicit costs.
What is a 'Shutdown Point'?
The point where a firm minimizes its losses by stopping production temporarily because the price is below AVC.
What is 'Marginal Revenue'?
The additional revenue gained from selling one more unit.
Define Long-Run Equilibrium in Perfect Competition.
The point where firms earn zero economic profit and are both allocatively and productively efficient.
Differentiate between economic and normal profit.
Economic profit considers all costs (explicit and implicit), while normal profit is just enough to keep the firm operating.
What are the key differences between perfect competition and monopoly?
Perfect competition has many small firms, while a monopoly has a single firm. Perfect competition has no barriers to entry, while a monopoly has high barriers.
What are the differences between short-run and long-run in perfect competition?
In the short run, firms can experience profit or loss; in the long run, firms earn zero economic profit.
What are the key differences between allocative and productive efficiency?
Allocative efficiency means P=MC (producing the right amount), while productive efficiency means P=min ATC (producing at the lowest cost).
Compare short-run loss and shutdown decisions.
In short-run loss, firms continue to produce if P > AVC; shutdown occurs when P < AVC.
Differentiate between a price taker and a price maker.
A price taker accepts the market price, while a price maker can influence the market price.
Compare barriers to entry in perfect competition and oligopoly.
Perfect competition has no barriers to entry, while oligopoly has significant barriers to entry.
What are the differences between identical and differentiated products?
Identical products are the same across all firms, while differentiated products have unique characteristics.
Compare the long-run supply curve in perfect competition and increasing cost industry.
The long-run supply curve is perfectly elastic in perfect competition and upward sloping in an increasing cost industry.
What is the difference between accounting profit and economic profit?
Accounting profit only considers explicit costs, while economic profit considers both explicit and implicit costs.