Ch_8 Lesson 2 Output Decisions Perfect Competition

Front

What is the profit formula in perfect competition?

Back

Profit = Total revenue – Total cost.

Front

How is total revenue calculated in perfect competition?

Back

Total revenue = (price)(quantity produced)

Front

What happens to total revenue if a firm produces more of the item?

Back

Total revenue will increase.

Front

What is the relationship between costs and profit?

Back

As costs go up, profit goes down.

Front

What is the shutdown point?

Back

The shutdown point is when it makes no economic sense to produce the good, considering both fixed and variable costs.

Front

What should a firm do if the price is less than the minimum average variable cost?

Back

The firm should shut down production.

Front

What is the profit maximizing output determined by?

Back

Comparing marginal revenue to marginal cost.

Front

What does MR = MC signify?

Back

It signifies the profit maximizing point where marginal revenue equals marginal cost.

Front

What are fixed costs?

Back

Costs that occur regardless of production, such as rent and salaries.

Front

What is the average profit margin?

Back

Average profit margin is the price divided by average total cost.