Term
| 4 Reasons why firms are likely to be price takers (demand curve is horizontal) |
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Definition
1 - consumers believe all firms in market sell identical goods
2- firms freely enter and exit market
3- buyers and sellers know the prices charged by firms
4 - transaction costs are low |
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Term
| business cost vs economic cost |
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Definition
| business is actual profit, economic is including all opportunity costs; you will alwyas make a better business profit |
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Term
| 2 steps to maximizing profit |
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Definition
1 - output decision = what output maximizes?
2 - shutdown decision -is it more profitable to produce q or to shut down and produce none?> |
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Term
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Definition
| change in profit over change in output (q); deltapi/deltaq |
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Term
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Definition
| 1 - the firm sets its output where profit is maximized |
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Term
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Definition
| a firmsets it output where its marginal profit is zero; slope is positive up to pt where output = q* |
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Term
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Definition
a firm sets it output where marginal revenue is marginal cost =
mr(q) = mc(q) |
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Term
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Definition
| change in cost/change in q |
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Term
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Definition
change in r/change in q
mr(q) = dR(q)/dq |
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Term
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Definition
mr(q)-MC(q)
= change in R/change in q/(change in
cost/change in q)
d profit(q)/dq; |
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Term
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Definition
| the firm shuts down only if it can reduce its lost by doing so (bc of things like sunk and variable costs!; if a firm could lose less by having revenue being greater than cost of variables then that is better than paying for the sunk in costs); profit = r - variable - fixed |
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Term
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Definition
| the firm shuts odwn only if its rvenue is less than its avoidable cost |
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Term
| in a competitive firm, marginal revenue is... |
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Definition
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Term
| a profit maximizing firm produces the amount of output at which its marginal cost equals... |
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Definition
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Term
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Definition
r-c/q=
pq/q - C/q =
p-AC(q) |
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Term
| a competitive firm shuts down if the market price is... |
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Definition
| less than the minimum of its short run average variable cost; pq |
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Term
| comptetitive firms short run supply curve is its |
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Definition
| marginal curve above its minimum average variable cost |
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Term
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Definition
| the firm chooses the qty that maimizres profit using same rules in short run l it operaties where long run marginal profit is zero and marginal rev. equals long run marginal cost |
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Term
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Definition
| shuts down if revenue is less than avoidable or variable cost; however, in long run, all costs are variable |
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