only variable costs can be changed
can only change production rates by labor/ materials
many different SRATC curves together
variable and fixed costs can change
when long-run ATC declines as output increases
output more than doubles
LRATC is downward sloping
rate at which output increases as inputs are increased proportionately (output doubles)
long-run ATC is as low as it can be
ATC per unit rises as output rises
expansion of factories causes inefficiency
LRATC is upward sloping
output less than doubles
explicit costs
always greater than economic profit
short run: firm permanently shut down
long run: firm leaves market
area between the ATC and the firm’s demand curve at the profit maximizing quantity (MR=MC)
P=MC
MB(consumer)=MC(producer)
a state of the economy in which production is aligned with consumer preferences (SHORT and LONG run)
P=minATC
the firm is producing at the minimum of the ATC curve
In the short run, perfectly competitive firms are not productively efficient, but in the long run they are. (LONG run)
perfectly elastic (horizontal) curve at the bottom of the firm’s ATC because the market price will always return to the bottom of the ATC in the long run
cannot be varied in the short run
does not change with quantity produced
can be varied in the short run to increase or decrease production
can change with quantity produced
additional outputs generated by additional inputs
1. firms have no product distinction
2. many small firms
3. perfect substitutes
4. low barriers to entry
5. no advertising
6. price TAKER
1. differentiated products
2. many firms
3. low barriers to entry
4. some control over price
5. lows of advertising/ branding
1. <10 large firms
2. identical or differentiated products
3. high barriers to entry
4. price MAKER
1. 1 large firm
2. no close substitute
3. high barriers to entry
4. price MAKER
1. Economies of Scale (natural monopoly)
2. Government-Created Barriers (patents to protect inventors)
3. Control of an Essential Resource
4. superior technology
1. demand is perfectly elastic
2. allocatively and productively efficient in the long run
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