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Chapter 12

Micro Econ

TermDefinition
Perfectly Competitive Market A market in which all market participants are price-takers
Price-taking producer A producer whose actions have no effect on the market price of the good it sells
Price-taking consumer A consumer whose actions have no effect on the market price of the good he or she buys
Perfectly Competitive Industry An industry in which producers are price-takers
Market share The fraction of the total industry output accounted for by that producer's output
Profit equation TR-TC
Total Revenue Equation PxQ
Average Revenue Equation TR/Q
Marginal Revenue Equation delta TR/delta Q
Maximize profit Produce quantity where TR-TC is greatest MR = MC
MR > MC Increase production
MR < MC Decrease production
Optimal output rule Profit is maximized by producing the quantity of output at which the MC of the last unit produced as equal to its MR
MC curve Upward sloping
ATC curve U-shaped
Price line Horizontal P=AR=MR
Shut down / incurs a loss TR < VC
Stay open / profitable TR > VC
Breaks even TR = TC
Break-even price The market price at which it earns zero profit
Competitive firm's long-run supply curve The portion of its marginal cost curve that lies above average total cost
Profit TR - TC = (P-ATC)xQ
Negative profit TC - TR = (ATC-P)xQ
Short run Market supply with a fixed number of firms
Created by: sarahmaechtle
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