Chapter 12 FINAL Flashcards
(12 cards)
firms in competitive markets increase output until
P=MC
the conditions of a competitive market imply that
every firm in the market faces the same price
competitive markets allocate producation
across firms that minimizes total costs of production
elimination principle
implies that above normal profits are eliminated by entry and below normal profits are eliminated by exit
creative destruction
those who fail to innovate
no one profits from the common place so an entrepreneur must
innovate to earn above normal profits
successful entrepreneurs divert
limited resources from low profit areas of the economy to high profit areas
competitive markets through the entry and exit process
balance production across industries such that the total value of production is maximized
Farm 1: hilly region which is costly to seed and plow
Farm 2: idea for growing
The farmer wants to grow 200 bushels of corn, marginal cost is higher on Farm1 than on Farm 2
would not grow all 200 on farm 2
produce 197 bushels on farm 2 and 3 bushels on farm 1
total costs of production on farm 2 will decrease while total costs of production will rise on farm 1
the decease in costs of production on farm 2 is greater than the increase in costs of production on farm 1 so total costs will fall
to minimize total costs of production the farmer will
set output on the two farms so that the marginal costs are equal
instead of 1 person owning the 2 farms supposed theyre owned by different people (Sandy& Pat)
sandy will produce a level of output such that P=MC
Pat will produce a level of output such that P=MC
they both face the same price bc their corn is being sold in the same copetitive market
the farms being owned by 2 seperate people is
exactly the same as that of a single owner
