Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.
market structure analysis perfect competition price taker marginal revenue profit maximizing rule normal profits shutdown point short-run supply curve increasing cost industry decreasing cost industry constant cost industry | Individual firms in perfectly competitive markets get their prices from the market because they are so small they cannot influence market price. For this reason, perfectly competitive firms are price takers and can produce and sell all the output they produce at market-determined prices An industry that, in the long run, faces higher prices and costs as industry output expands. Industry expansion puts upward pressure on resources (inputs), causing higher costs in the long run The marginal cost curve above the minimum point on the average variable cost curve Firms maximize profit by producing output where MR = MC. No other level of output produces higher profits By observing a few industry characteristics such as number of firms in the industry or the level of barriers to entry, economists can use this information to predict pricing and output behavior of the firm in the industry A market structure with many relatively small buyers and sellers who take the price as given, a standardized product, full information to both buyers and sellers, and no barriers to entry or exit The change in total revenue from selling an additional unit of output. Because competitive firms are price takers, P = MR for competitive firms An industry that, in the long run, faces lower prices and costs as industry output expands. Some industries enjoy economies of scale as they expand in the long run, typically the result of technological advances An industry that, in the long run, faces roughly the same prices and costs as industry output expands. Some industries can virtually clone their operations in other areas without putting undue pressure on resource prices, resulting in constant operating costs as they expand in the long run When price in the short run falls below the minimum point on the AVC curve, the firm will minimize losses by closing its doors and stopping production. Because P < AVC, the firm’s variable costs are not covered, therefore by shutting the plant, losses are reduced to fixed costs only The return on capital necessary to keep investors satisfied and keep capital in the business over the long run. Equal to zero economic profits; where P = ATC |