Chapter 14

  1. Perfectly competitive market
    a market in which economic forces operate unimpeded
  2. For a market to be called perfectly competitive it must meet 6 conditions...
    • 1 both buyers and sellers are price takers
    • 2 the number of firms is large
    • 3 there are no barriers to entry
    • 4 firms products are identical
    • 5 there is complete information
    • 6 selling firms are profit meximising entrepreneuraial firms
  3. price taker
    is a firm or individual who rakes the price determined by market supply and demand as given
  4. barriers to entry
    are social, political or economic impediments that prevent firms from entering a market
  5. marginal revenue (MR)
    the change in total revenue associated with a change in quantity
  6. marginal cost (MC)
    the change in total cost associated with a change in quantity
  7. market supply curve
    is just the oricontal sum of all the firms' marginal cost curves taking account of any changes in input prices that might occur
  8. normal profit
    the amount the owners of business would have recieved in the next best alternative
  9. shut down point
    that point below which the firm will be better off if it temporarily shuts down then it will if it stays in business
  10. profit-maximizing condition
    MC= MR = P
  11. the profit maximizing position of a competitive firm is..
    where marginal revenue equals marginal cost
  12. the supply curve of a competitive firm is its
    margnial cost curve. only competitive firms have supply curves
  13. to find the profit-maximizing level of output for a perfect competitor, you must
    find that level of output where MC = MR. profit is price less average total coss timees output at the profit maximizing level of output
  14. compair the short run to the long run for competive firms
    in the short run competitive firsm can make a profit or loss, in the long run they make 0 profit
  15. the shut down price for a perfectly competitive firm is
    a price below average variable cost
  16. the short run market supply curve is the
    horizontal summation of the marginal cost curves for all firsm in the market. an increase in the number of firms in the market shifts the market supply curve to the right while a decrease shifts it to the left
  17. perfectly competitive firsm make zero profit in the long run because
    if profit were being made, new firms would enter and the market price would decline eliminating the profit. if losses were being made firms would exit and the market price would rise
  18. the long run supply curve is
    a scheduel of quantites supplied where firms are makign zero profit
  19. constant-cost industries have
    horizontal long-run supply curves
  20. increasing-cost industries have
    upward sloping long run supply curves
  21. decreasing-cost industreis
    have downward sloping long run supply curves
Card Set
Chapter 14
terms and summary