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  1. In chapter 7, MC and ATC are equal only at the minimum point of the ATC curve.
  2. Indeed, most agricultural markets satisfy the strict requirements of perfect competition quite closely, as do many financial markets and some markets for consumer goods and services.
  3. Look at the graphs on page 261
  4. For any price below the minimum AVC, the firm will shut down and produce zero.
  5. Because we are dealing with a constant cost industry, the long-run supply curve is ____________.
  6. As the price of output changes, the firm will ___________ its MC curve in deciding how much to produce. But there is one problem with this: If the firm is suffering a loss-- a loss large enough to justify shutting down, then it will not produce along its MC curve; it will ______.
  7. What is economic profit?
  8. In a competative market, ___________ continues to attract new entrants until economic profit is reduced to zero.
  9. Since it is a perfectly competitive firm, a small participant in the market it can---
  10. When differences among firms' products matter to buyers...
  11. How is short run equilibrium established?
  12. In the ________ equilibrium, competitive firms can earn an economic profit or suffer an economic loss.
  13. The typical firm, taking the market price P as given, produces the profit-maximizing output level q*, where MR=MC. Since this is the long run, each firm will be earning _________.
  14. The TR and TC approach is the most direct way of viewing the firm's search for the profit-maximizing output level. Quite simply, at each output level, subtract total cost from the total revenue to get total profit.
  15. The long run supply curve tells us that an increasing cost industry will deliver more _________, but only at a _________ price.
  16. In perfect competition, the firm is a ________: it treats the price of its output as given.
  17. The shutdown price is found at the _________ of the AVC curve.
  18. What are the two approaches for finding the profit maximizing output level?
  19. Under perfect competition, a technological advance leads to a rightwards shift of the market supply curve, decreasing market price.
  20. What is a decreasing cost industry?
  21. In an increasing cost industry, a rise in industry output shifts ______ each firm's LRATC curve, so that zero economic profit occurs at a higher price. THe long-run curve slopes ________.
  22. In a perfectly competitive market...
  23. What is the price at which a firm is indifferent between producing and shutting down?
  24. In the MR and MC approach, the firm should..
  25. In perfect competition, the market sums up the buying and selling preferences of individual consumers and producers, and determines the market price.
  26. By market structure we mean...
  27. Entry into a market is rarely free; a new seller must always incur some costs to set up shop.
  28. What is the firm's profit per unit?
  29. In terms of economics, competition is used to to describe...
  30. In a competitive market, economic losses continue to cause _______ until the losses are reduced to zero
  31. Shutdown Rule:
  32. Not one individual firm has the power to influence tha market price. Rather the price is determined by...
  33. In microeconomics, we can divide markets for goods and services into four basic kinds of market structure:
  34. Page 265
  35. P=ATC. But since P=MC and P*=ATC, it must also be true that _______.
  36. Page 261 graph
  37. The long run supply curve tells us that if an industry output decreases, prices will _________. This is because...
  38. In a competative market, economic profit and loss are the forces driving long-run change.
  39. In a market economy, price changes act as ___________, ensuring that the pattern or pridcution matches the pattern of consumer demands.
  40. Question at the bottom of page 264
  41. A firm earned a profit whenever, P> ATC.
  42. Perfect competition also requires _____ exit.
  43. In perfect competition, both buyers and sellers...
  44. In order to know for certain how much output the firm will produce, we must utilize _______.
  45. As we move along the market supply curve, what do we assume are constant?
  46. An increase in the number of firms shifts the market supply curve ____________, which drives down the price until the economic profit is eliminated.
  47. Th obtain the _________, we add up the quantities of output supplied by all firms in the market at each price.
  48. To emphasize that zero economic profit is not an unpleasant outcome, economists often replace it with the term __________, which is a synonym for "zero economic profit."
  49. What is the constant cost industry?
  50. A competitive firm's supply curve is its ______ curve for all prices above the minimum AVC. For all prices below minimum AVC, the firm will ______.
  51. In the long run, firms can expect zero economic profit.
  52. Graph and explanation
  53. Price changes act as signals for firms to ___________.
  54. If a graph gives us the combined output level of just those firms already in the industry, what does the graph represent?
  55. FIgure 9 explanation at bottom of page...
  56. Panel A does not show true long run equilibrium
  57. In the long-run equilibrium, the competitive firm operates where:
  58. A perfectly competitive firm faces a demand curve that is horizontal (perfectly elastic) at the market price. why should this be?
  59. Because every farm in the industry-- the existing ones as well as new entrants-- must pay more for their farmland, their LRATC curves have shifted __________.
  60. In a perfectly competitive market, the number of buyers and sellers is so large that...
  61. Review 260-270
  62. Look at the chart on page 257
  63. What is a market signal?
  64. In a constant cost industry, in which industry output has no effect on individual firm's cost curves, the longprun supply curve is horizontal. In the short run, the industry will ______.
  65. What is the long run supply curve?
  66. A firm suffers loss whenever P<ATC at the best level of output.
  67. In the short run, the numbers of firms in the industry is _______.
  68. In the long run, as the number of firms increases, the market supply curve will ______________.
  69. In the __________, new firms can enter a competitive market, and existing firms can exit the market.
  70. Expansion by existing firms and entry by new ones increase market output and bring down the market price. This would be illustrated by a _____________ shift of the demand curve.
  71. As the market supply curve shifts rightward, what happens?
  72. In the long run, the typical firm will want to expand. Why?
  73. In the long-run equilibrium, a competitive firm will operate with the plant and output level that bring it to the bottom of its ________ curve.
  74. There is one other possible consequence that we ignore here:
  75. For a competitive firm, marginal revenue is the same as the market price. For this reason, the marginal revenue curve and the demand curve facing the firm are...
  76. The _________ curve show if then relationships. IF the price were such and such, then the firms would supply this much and consumers would buy this much.
  77. Perfect competition is a market structure with four important characteristics:
  78. What is marginal revenue?
  79. What happens in the long run ayer the demand curve shifts rightward?
  80. If TR> TVC then __________.
  81. What is an increasing cost industry?
  82. One way to measure profit on a graph: the vertical distance between the TR and TC curves. Another way is ______.
  1. a Shift Rightward
  2. b have all information relevant to their decision to buy or sell.
  3. c Rightward
  4. d Horizontal
  5. e supply any amount of output demanded at an unchanged price.
  6. f Thus, we know that each firm must be operating at the lowest possible point on the ATC cube for the plant it is operating. Finally each firm selects the plant that makes its LRATC as low as possible, so each operates at the minimum point on its LRATC curve.
  7. g 263
  8. h Entry into the industry, which changes the demand curve for the industry's inputs, may also change input prices. If this occurs, firms' cost curves can shift as well.
  9. i We can summarize all of this information with the firm;s supply curve, which tells us how much output the firm will produce at each price.
  10. j PAGE 257
  11. k continue to increase output as long as marginal revenue is greater than marginal cost.
  12. l output, higher
  13. m To measure the firm's profit per unit.
  14. n enter or exit an industry
  15. o Its total profit at the nest output level equals the area of a rectangle with height equal to the distance between P and ATC, and width weal to the quantity of output.
  16. p The market equilibrium will more from point A to point C. A line drawn through these two points tells us, in the long run, the market price we can expect for any quantity the market provides.
  17. q market supply curve
  18. r no individual decision maker can significantly affect the price of the product by changing the quantity it buys or sells.
  19. s MC=ATC
  20. t the market is not perfectly competitive.
  21. u The amount by which total revenue exceeds all costs of doing business.
  22. v buyers do not perceive differences between the products of one seller and another. For example, buyers of wheat will ordinarily have no preference for one farmer's wheat over another's, so wheat would surely pass the standardized product test.
  23. w First, in perfect competition, output is standardized. Second, small firms do not make much difference in the market quantity supplied. The horizontal demand curve describe this effect very well: the firm can increase its production without having to lower its price. ALl of this means that firms have no control over the price of its output-- it accepts the market price as given.
  24. x The same: a horizontal line at the market price.
  25. y zero economic profit.
  26. z Causes input prices to fall, ant the LRATC curve to shift downward at each firm. An industry in which the long run supply curve slopes downward because each firm's LRATC curve shifts downward as industry output increases.
  27. aa Read this very late in the night
  28. ab Expand in this way without worrying about affecting the market price. As a result, the firm, after expanding, could p[erate on a new, lower ATC curve, so that ATC is less than P. That ism by expanding, the firm could potentially earn an economic profit.
  29. ac Drop, a decrease in output would cause each firm's LRATC curve to shift downward so that zero profit would be established at a lower price than initially.
  30. ad Remember that zero economic profit is not the same as zero accounting profit.
  31. ae Its total los equals the area of a rectangle with height equal to the distance between P and ATC, and width equal to the quantity of output.
  32. af But in a perfectly competitive market has no significant barriers or speciel costs to discourage new entrants.
  33. ag a situation of diffuse, impersonal competition in a highly populated environment.
  34. ah An industry in which the long-run supply curve slopes upward because each firm's LRATC curve shifts upward. The entry of new firms that use the same inputs as existing firms drives up input prices. This in turn causes each firm;s LRATC curve to shift upward.
  35. ai The Shutdown Rule
  36. aj Minimum
  37. ak 1. There are large numbers of buyers and sellers, and each buys or sells only a tiny fraction of the total quantity in the market.
    2. Sellers offer a standardized product.
    3. Sellers can easily enter into or exit from the market.
    4. Buyers and sellers are well-informed.
  38. al Normal Profit
  39. am Slide along, Produce zero units instead
  40. an Short run
  41. ao Because by increasing its plant size, it could slide down its LRATC curve and produce more output at a lower cost per unit.
  42. ap TWANDA!!!!
  43. aq Rightward.. But how far can we expect the market supply curve to shift? This depends on whether or not the expansion of the industry causes each firm's cost curves to shift.
  44. ar The firm should continue to operate.
  45. as The fixed inputs of each firm and the number of firms in the market
  46. at Fixed
  47. au In the short run, early adopters may enjoy economic profit, but in the long run, all adopters will earn zero economic profit. Firms that refuse to use the new technology will not survive.
  48. av Price changes that cause changes in production to match change in consumer demand.
  49. aw Market supply curve
  50. ax and explanation on page 160
  51. ay Long run
  52. az All of the characteristics of a market that influence the behavior of buyers and sellers when they come together to trade/ influences how trading takes place.
  53. ba LRATC
  54. bb there is a question that I don't know what it is.
  55. bc Combining supply and demand curves to find the market equilibrium.
  56. bd Easy
  57. be ...
  58. bf An industry in which the long-run supply curve is horizontal because each firm;s cost curves are unaffected by changes in industry.
  59. bg Each buyer and seller then takes the market price as given, and each is able to buy or sell the desired quantity.
  60. bh Upward (greater cost per unit at each output level)
  61. bi Shows the relationship between market price and market quantity produced after all long-run adjustments have taken place. A curve indicating price and quantity combinations in an industry after all long run adjustments have taken place.
  62. bj The additional revenue the firm earns from selling an additional unit of output. For a price-taking competitive firm, the additional revenue will always be he unchanging price it gets for each unit (in the case of figure 2 this is $800).
  63. bk Page 258
  64. bl The revenue it gets on each unit minus the cost per unit.
    Profit per unit= P- ATC. (P is just the price of the firm's output)
  65. bm Shut down if TR<TVC
    Shut down if (TR/q)<(TVC/Q)
    Shut down if P<AVC
  66. bn MC=minimum ATC=minimum LRATC=P
  67. bo Price taker
  68. bp Yet when economists look at real-world markets, they use the perfect competition model more than any other market model because it is powerful and many markets are reasonably close to being perfectly competitive.
  69. bq Market signals, when demand deceases, a fall in price signals firms to exit the market, decreasing industry output.
  70. br The expectation of continued economic profit causes outsiders to enter the market; the expectation of continued economic losses causes firms in the market to exit.
  71. bs Positive economic profit
  72. bt The total revenue and total cost approach and the MR and MC approach.
  73. bu 1. The market price begins to fall
    2. As the market price falls, the horizontal demand curve facing each firm shifts downward
    3. Each firm, striving as always to maximize profit-will slide down its marginal cost curve, decreasing output
  74. bv up, upward
  75. bw The short run
  76. bx Perfect competition, monopoly, monopolistic competition, or oligopoly.
  77. by Exit
  78. bz all of them, adjusting until total quantity supplied equals total quantity demanded.
  79. ca Page 262 graph explained
  80. cb Total Profit= TR- TC
  81. cc MC, Shut down
  82. cd Shutdown price