Principles of Economics- Mankiw (5th) 302

Principles of Economics- Mankiw (5th) 302 - 312 PA R T F I...

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312 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY demand lowers prices and leads to losses. But if firms can freely enter and exit the market, then in the long run the number of firms adjusts to drive the market back to the zero-profit equilibrium. competitive market, p. 292 average revenue, p. 294 marginal revenue, p. 294 sunk cost, p. 298 Key Concepts 1. What is meant by a competitive firm? 2. Draw the cost curves for a typical firm. For a given price, explain how the firm chooses the level of output that maximizes profit. 3. Under what conditions will a firm shut down temporarily? Explain. 4. Under what conditions will a firm exit a market? Explain. 5. Does a firm’s price equal marginal cost in the short run, in the long run, or both? Explain. 6. Does a firm’s price equal the minimum of average total cost in the short run, in the long run, or both? Explain. 7. Are market supply curves typically more elastic in the short run or in the long run? Explain.
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