AP®︎ Microeconomics: Topic 3.6 Flashcards

Master key terms and definitions for Topic 3.6 of AP Microeconomics – Firms’ Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market to help you prep for quizzes and the AP exam.

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Term

Short-Run Operate or Shut Down Decision

Definition

Operate if total revenue covers total variable cost; otherwise produce zero output.

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Short-Run Operate or Shut Down Decision
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Operate if total revenue covers total variable cost; otherwise produce zero output.

PRD-2.APRD-2.A.1
Fixed Costs in the Short Run
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Costs that must be paid even when output is zero.

PRD-2.A
Why a Firm May Produce at a Loss in the Short Run
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It keeps operating when revenue covers variable costs and losses are smaller than fixed costs.

PRD-2.APRD-2.A.1
Economic Profit, Loss, and Normal Profit
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Profit means TR exceeds TC; loss means TR is below TC; normal profit means zero economic profit.

PRD-2.A
Short Run vs. Long Run for Firm Decisions
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In the short run some costs are fixed; in the long run all inputs and costs are variable.

PRD-2.A
No Barriers to Entry or Exit
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Firms can freely join or leave the market without major legal, financial, or structural obstacles.

PRD-2.APRD-2.A.2
Market Effects of Entry and Exit
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Entry shifts supply right and lowers price; exit shifts supply left and raises price.

PRD-2.APRD-2.A.2
Price Taker
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A firm that accepts the market price because its own output cannot affect price.

PRD-2.A
Long-Run Equilibrium in Perfect Competition
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Entry and exit continue until firms earn zero economic profit at the market price.

PRD-2.APRD-2.A.2
Shut-Down Rule
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Produce in the short run when price covers AVC, or equivalently when total revenue covers total variable cost.

PRD-2.APRD-2.A.1
Long-Run Entry and Exit Rule
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With no barriers, firms enter for economic profit and exit when they expect economic losses.

PRD-2.APRD-2.A.2