3.6
If a firm is earning a loss what must is consider?
It needs to decide whether or not it's better to stay open and continue to lose money or shut down temporarily to minimize lose
What are some character of perfect competition?
Price-taking firms, lots of competitors, identical products, free entry and exit in the long run, zero economic product in the long run
What is true about the MP and the TP?
When the MP is increasing, the TP is increasing at an increasing rate
What shapes are the ATC and AVC normally on the graph?
U-Shaped
All factors of production are variables in the long run. True or False?
True
What is the shut down rule?
If TV<VC the firm should shut down
What is an example of perfectly competitive markets?
Wheat field
What happens to the TP when the MP is positive but decreasing?
What is true about ATC
ATC falls as fixed costs are spread over more units of output and then rises as diminishing returns outweigh the spreading affect
Marginal Costs are constant in the long run. True or false
false
Carl's delivery contract increases by $25, which increases Fixed Costs again. The firm is now earning a loss. Should they stay open or shut down?
Why is a wheat field and fishing trawler good examples of perfect competition?
There are many fishers and farmers out there which they also use specialized equipment and standardized products.
When the MP is at zero where is the Tp
The TP is at its max
What is true about AFC?
AFC is always decreasing so AVC and ATC get closer
What is true about the Short Run
Only variable inputs can be altered some inputs are fixed planet capacity is fixed and there are both fixed and variable costs
Variable costs increased by $110 because food and labor prices increase. The firm is now earning a loss of -$135. Should they stay open or shut down?
Temporarily Shut Down
What is true about a firm in a perfectly competitive market?
Average revenue equals marginal cost
When the MP is negative what happens to the TP?
the TP will start decreasing
Why does the MC decreases at first?
Due to specialization and increasing MP but then increases due to diminishing returns and decreasing MP
What is true about Long Run
all inputs can be altered no inputs are fixed plant capacity can be altered and all costs are variable
A competitive firm is producing where MR=MC. It also faces the following cost and revenue data. What should it do to in the short run?
Stay open to minimize losses
List the 3 Characteristics of Perfectly competitive firms.
Price takers, lots of competition, identical products
When the MP crosses through the max of AP what happens?
When MP is above AP, AP will rise and when MP is below AP, AP will fall
As output of a firm increases, the difference between the firms average total cost and its average variable cost gets smaller because the firms...
average fixed cost is decreasing
F&D Manufacturing Company increases all its inputs by 50 percent each. If F&Ds output increases by 100 percent then F&D is experiencing
increasing return to scale