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What are the 5 Product Markets?
1. Profit Maximization.
2. Perfect Competition.
3. Monopoly
4. Monopolistic Competition
5. Oligopoly.
What is the objective of a for-profit firm?
to maximize profit
Total Revenue is the price of... goods and services multiplied by the quantity sold, PQ.
...goods and services multiplied by the quantity sold, PQ.

Profit = PQ – Cost of land, labor and capital
Profit is Total Revenue less...
...the costs of the resources
(land, labor, capital) used.
Define: Marginal Cost
Marginal cost is the additional cost of producing one more unit of output.
Define: Marginal Revenue
Marginal revenue is the additional revenue from selling one more unit of output.
Profit is maximized at...
Profit is maximized at the output level where marginal revenue and marginal cost are equal.
The supply rule is:
The supply rule is: Produce and offer for sale the quantity at which MR=MC.
Equation MR:
MR = ΔTR/ΔQ
Marginal Revenue = Change in Total Revenue/Change in Total Output
Equation MC:
MC = ΔTC/ΔQ
Marginal Cost = Change in Total Cost/Change in Total Output
Comparing marginal revenue and Comparing marginal revenue and marginal cost determines whether the firm needs to
...supply more or less in order to maximize profit.
Define: Market Structure
The selling environment in which a firm produces and sells its product is called a market structure
Market Structure is Defined by what three characteristics:
The number of firms in the market
The ease of entry and exit of firms
The degree of product differentiation
Define the Characteristics of a Perfect Competition market structure:
  • Number of Firms
  • Entry Condition
  • Product Type
Perfect Competition has
  • A Very Large Number of Firms
  • Easy Entry Conditions
  • A Standardized Product Type
Define the Characteristics of a Monopoly market structure:
  • Number of Firms
  • Entry Condition
  • Product Type
A Monopoly has 
  • One Firm
  • No Entry is Possible
  • Only One Product
Define the Characteristics of a Monopolistic Competition market structure: 
  • Number of Firms
  • Entry Condition
  • Product Type
A Monopolistic Competition has 
  • A Large Number of Firms
  • Easy Entry Conditions
  • Differentiated Product Type
Define the Characteristics of an Oligopoly market structure: 
  • Number of Firms
  • Entry Condition
  • Product Type
An Oligopoly has 
  • Few Firms
  • Impeded Entry Conditions
  • Standardized or Differentiated Product Type
In Perfect Competition, the products are...
In Perfect Competition, the products are perfect substitutes. "Identical Products"
The Demand Curve of a Perfect Competition is...
The Demand Curve of a Perfect Competition is Horizontal.
Perfect Competitions are Price...
Perfect Competitions are Price Takers. No one firm has the ability to affect the market.
Monopoly market structures are Price...
Monopoly market structures are Price Makers. But they set it to an optimal price to maximize profit. If the price is too high, revenue will decline.
The Demand Curve of a Monopoly is...
The Demand Curve of a Monopoly is the same as the Market Demand curve and it is Downward Sloping.
Monopoly on the subject of product substitutes...
There are no close substitutes
In Monopolistic Competition, the products are...
Differentiated Products Each firm's product is slightly different which makes each firm a mini-monopoly for that specific product.
Monopolisitic Competition market structures are Price...
Monopolistic Competition market structures are Price Makers because they are mini-individual-product monopolies.
The Demand Curve of a Monopoly is...
Downward Sloping
Depending on the differentiation of the firm’s product, it may be fairly inelastic
An Oligopoly market has how many firms?
Few, but enough so each firm alone can affect the market
Oligopoly firms are...
Oligopoly firms are interdependent. Each affected by what others do.
The Demand Curve of an Oligopoly is...
The Demand Curve of an Oligopoly is Downward Sloping for EACH firm, but shape depends on competitor behavior.
The Promotion Strategy of a Perfect Competition is...
None. No strategy.
The Promotion Strategy of a Monopoly is...
Little. Because they own the market.
The Promotion Strategy of a Monopolistic Competition is...
Large Amount goes into Strategy
The Promotion Strategy of an Oligopoly is...
Little or Large. It could be either one.
Perfect Competition and Information...
Buyers (consumers) and sellers (firms) have perfect information.
Define: Price Taker
when the price of a product is determined by market supply and demand, and the individual firm can do nothing to change that price.
Profit is maximized where...
MR=MC
If the cost of producing one more unit is less than the revenue it generates,
... , then a profit is available for the firm that increases production by one unit.
If the cost of producing one more unit is more than the revenue it generates
... then increasing production reduces profit.
When will a firm stop increasing production?
At MR=MC, when it is no longer profitable to continue to increase production.
How is Profit Maximization graphed?
Where the MC curve crosses the MR curve
The perfectly elastic demand curve (the price line and the marginal-revenue curve) is affected by
Price Changes
Profit or loss is determined by finding the quantity at which
the marginal-revenue curve equals the marginalcost curve.
If the demand curve is above the ATC curve,
the firm is making a profit.
If the ATC curve exceeds the price line,
the firm is suffering a loss.
Define: Shutdown price
Shutdown price: the minimum point of the averagevariable-cost (AVC) curve.
Define: Break-even Price
Break-even price: A price that is equal to the minimum point of the average-total-cost (ATC) curve.
At this price, economic profit is zero.
Define: Short Run
Short Run is a timeframe in which at least one of the resources used in production cannot be changed.
Exit and Entry are...
Exit and Entry are Long-Run Phenomena
Define: Long Run
In the long run, all quantities of resources can be changed.
Entry and exit occur whenever...
firms are earning more or less than “normal profit” (zero economic profit).
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