AP Micro 14 by Savannah Julius

Quizlet

8juliuss — 2018-01-29 17:55:53 UTC

https://quizlet.com/_4az7q3

Meaning of Competition

8juliuss — 2018-01-29 17:56:43 UTC

competitive:
1. many buyers and sellers
2. identical products
3. price takers
4. free to enter/exit

Revenue of Competitive Firm

8juliuss — 2018-01-29 17:57:24 UTC

average revenue = marginal revenue = PRICE OF THE GOOD

MR = D = AR = P
Mr. Darp

Simple Example for Profit Maximization

8juliuss — 2018-01-29 17:58:40 UTC

Total cost = fixed costs + variable costs

* when marginal revenue equals marginal cost, profit is MAXED
--> MR = MC
therefore...

if MR > MC, increase output
if MR < MC, decrease output

Profit is maxed when MR=MC or when P intersects MC

Marginal Cost Curve and Firm's Supply Decision

8juliuss — 2018-01-29 18:00:09 UTC

short run supply curve = marginal cost curve above average variable cost curve

short run S = MC above AVC

long run supply curve = marginal cost curve above the average total cost curve

long run S = MC above ATC

Firm's Short Run Decision to Shut Down

8juliuss — 2018-01-29 18:02:33 UTC

sunk cost = fixed cost during a shut down / cost that has already been committed

shut down if P < AVC

Firm's Long Run Decision to Exit/Enter a Market

8juliuss — 2018-01-29 18:03:39 UTC

enter if P > ATC
exit if P < ATC

Measuring Profit on Graph of Competitive Firm

8juliuss — 2018-01-29 18:04:26 UTC

profit = (P - ATC) * Q
loss = (ATC - P) * Q

Short Run: Market Supply with a Fixed Number of Firms

8juliuss — 2018-01-29 18:05:43 UTC

the individual firm supply IS the market supply

Long Run: Market Supply with Entry and Exit

8juliuss — 2018-01-29 18:06:24 UTC

efficient scale = long run equilibrium = zero profit...when... MC = ATC

firm's zero profit condition is the market supply

A Shift in Demand in the Short Run and Long Run

8juliuss — 2018-01-29 18:08:11 UTC

1. Market being in long-run equilibrium; firm earns zero profit

2. an increase in demand increases the price; short run profits appear

3. profits induce other firms to enter, and increase in supply decreases the price, long run equilibrium is restored

Why the Long Run Supply Curve Might Slope Upward

8juliuss — 2018-01-29 18:10:32 UTC

1. resources in production are limited
2. firms have differing costs

*because firms can enter and exit easily in the long run versus the short run, the long run supply curve is more elastic than the short run supply curve

Key Concepts Group 1

8juliuss — 2018-01-29 18:13:00 UTC

MR > MC, increase output to raise profit
MR < MC, decrease output to raise profit
MR = MC, profit is maximized at that quantity

Key Concepts Group 2

8juliuss — 2018-01-29 18:13:52 UTC

MC is upward sloping and the ATC is u-shaped
because a firm is a price taker, the demand curve is perfectly elastic and horizontal
MR = D = AR = P
because a firm's MC curve determines the quantity of goods the firm is willing to supply at any given price, then the MC curve above AVC is the supply curve