Production Efficiency
producing at the lowest possible cost
point where price equals minimum ATC
Allocative Efficiency
Producing the amount most desired by society (allocating resources towards the products society wants)
- Graphically it is where price equals marginal cost
price-taking firm’s
optimal output rule
says that
a price-taking firm’s profit is
maximized by producing the
quantity of output at which
the market price is equal to
the marginal cost of the last
unit produced.
break-even price of a
price-taking firm
is the market
price at which it earns zero
profit.
A firm will cease production
in the short run…
if the market
price falls below the
shut-down price
shut-down price
which is
equal to minimum average
variable cost.
short-run individual
supply curve
shows how
an individual firm’s profit maximizing level of output depends on the market price, taking the fixed cost as given
industry supply curve
shows the relationship
between the price of a good
and the total output of the
industry as a whole.
short-run industry supply
curve
shows how the quantity
supplied by an industry
depends on the market price,
given a fixed number of firms.
short-run market
equilibrium
when the quantity
supplied equals the quantity
demanded, taking the
number of producers as given.
long-run market
equilibrium
when the quantity
supplied equals the quantity
demanded, given that
sufficient time has elapsed for
entry into and exit from the
industry to occur.
long-run industry supply
curve
shows how the quantity
supplied responds to the
price once producers have
had time to enter or exit the
industry
constant-cost industry
is one with a horizontal
(perfectly elastic) long-run
supply curve
increasing-cost industry
is one with an upward-sloping
long-run supply curve.
decreasing-cost industry
is one with a downward-sloping
long-run supply curve.
public ownership
the good is
supplied by the government
or by a firm owned by the
government.
Price regulation
limits the price that a monopolist is
allowed to charge.
single-price monopolist
charges all consumers the
same price.
price discrimination
when they
charge different prices to
different consumers for the
same good.
perfect price discrimination
when a
monopolist charges each
consumer his or her willingness
to pay—the maximum that the
consumer is willing to pay
productively efficient
P = min ATC
allocatively efficient
P=mc
