How would a subsidy affect firms in a perfectly competitive market?
A subsidy would lower costs, potentially leading to short-run profits and eventual market entry, increasing supply and lowering price.
What is the impact of a tax on firms in a perfectly competitive market?
A tax would increase costs, potentially leading to short-run losses and eventual market exit, decreasing supply and raising price.
What does the intersection of market supply and demand curves indicate?
The market equilibrium price and quantity.
On a cost curve graph, what does the point where P < AVC indicate?
The firm should shut down production in the short run.
What does a rightward shift in the market supply curve indicate?
An increase in the quantity supplied at every price, often due to new firms entering the market.
What does a leftward shift in the market supply curve indicate?
A decrease in the quantity supplied at every price, often due to firms exiting the market.
How is profit shown on a cost curve graph?
The vertical distance between price (P) and average total cost (ATC) at the profit-maximizing quantity, multiplied by the quantity.
How is loss shown on a cost curve graph?
The vertical distance between average total cost (ATC) and price (P) at the profit-maximizing quantity, multiplied by the quantity.
What does the horizontal demand curve facing a perfectly competitive firm represent?
The market price, which the firm takes as given.
What does the point where MC = MR on a firm's cost curve graph represent?
The profit-maximizing quantity of output for the firm.
On a graph, where is the firm making zero economic profit?
Where the ATC curve is tangent to the demand (price) curve.
What does the vertical distance between ATC and AVC represent?
Average Fixed Cost (AFC).
What is the difference between the short run and the long run for a firm?
In the short run, some costs are fixed. In the long run, all costs are variable, and firms can enter or exit the market.
Compare economic profit and accounting profit.
Accounting profit considers only explicit costs, while economic profit considers both explicit and implicit (opportunity) costs.
Differentiate between firm's individual demand curve and market demand curve.
A firm in perfect competition faces a horizontal demand curve at the market price, while the market demand curve is downward sloping.
