Fixed or Variable
This type of cost does not change when a firm’s output changes.
What is a fixed cost?
The marginal cost curve always intersects these two curves at their minimum points.
What are AVC and ATC?
In perfect competition, this determines the price each firm can charge.
What is the market price?
This market structure has many firms producing identical products with easy entry and exit.
What is perfect competition?
In the long run, perfectly competitive firms earn this type of profit.
What is zero economic profit (normal profit)?
These costs rise as output increases and include things like labor and materials.
What are variable costs?
When marginal cost is below average total cost, this happens to average total cost.
What is it decreases?
All firms maximize profit where marginal revenue equals this.
What is marginal cost?
This market structure consists of a single seller with high barriers to entry.
What is monopoly?
New firms enter a competitive market when profits exist because entry is this.
What is easy (or unrestricted)?
The rent paid on a factory building is an example of this kind of cost.
What is a fixed cost?
At the shutdown point, price equals these two cost measures.
What are AVC and MC?
If price exceeds average total cost, the firm is earning this type of profit.
What is economic profit?
In this market structure, a few firms dominate and are interdependent in setting prices.
What is oligopoly?
Firms in monopolistic competition operate with excess capacity in the long run because they do not produce at this point on their average total cost curve.
What is the minimum point?
When a firm produces zero output, its total cost equals this.
What is total fixed cost?
When marginal product is rising, this happens to marginal cost.
What is marginal cost decreases (they’re inversely related)?
For a monopolist, the marginal revenue curve lies in this position relative to the demand curve.
What is below the demand curve?
This market structure features many firms selling differentiated products.
What is monopolistic competition?
A natural monopoly exists when this happens to long-run average total cost as output increases.
What is it continues to decrease (economies of scale)?
If total cost is $1,000 at zero output and $1,800 when producing 200 units, this is the total variable cost.
What is $800?
A firm’s ATC is $12, AVC is $9, and price is $10 at a quantity of 100. This is the firm’s short-run profit or loss.
What is a $200 loss?
A perfectly competitive firm will shut down in the short run if the market price falls below this cost.
What is average variable cost?
Rank the four major market structures from most to least competitive.
What is perfect competition → monopolistic competition → oligopoly → monopoly?
This happens to price and profit in a perfectly competitive industry over time when technological progress lowers firms’ long-run average total costs.
What is: Price falls and profits return to normal as new firms enter the market and increase supply.