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.
How does a subsidy affect the market?
It decreases the cost of production, increases supply, and lowers the market price.
How does a tax affect the market?
It increases the cost of production, decreases supply, and raises the market price.
How does price control affect the market?
It creates shortages if set below the equilibrium price or surpluses if set above.
What is the impact of regulations on production costs?
Regulations typically increase production costs, leading to decreased supply and higher prices.
What is the effect of removing barriers to entry?
More firms enter the market, increasing supply and decreasing the market price.
How does a price ceiling affect firms?
If binding, it reduces revenue and can lead to losses, potentially causing firms to exit the market.
How does a price floor affect firms?
If binding, it leads to surpluses, meaning firms may not be able to sell all their product.
How does a tariff affect domestic firms?
It increases the price of imported goods, making domestic firms more competitive.
How do consumer protection laws affect firms?
They increase costs due to compliance but can also enhance reputation and demand.
How does antitrust policy affect firms?
It prevents monopolies and encourages competition, potentially limiting the size and market power of individual firms.
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.