14 - Firms In Competitive Markets

Question 0

Describe two conditions that characterize perfect competition

Answer 0

Forms can freely enter or exit the market

There is a high degree of information available to buyers and sellers in the market

Question 1

Buyers and sellers in competitive markets must accept the price the market determines and therefore are said to be

Answer 1

Price takers

Question 2

Total revenue - Total cost =

Answer 2

Total profit

Question 3

PxQ=

Answer 3

Total revenue

Question 4

Average revenue=

Answer 4

Total revenue / Quantity

Question 5

Marginal Revenue =

Answer 5

Change in Total Revenue / Quantity

Question 6

What are three features of marginal cost curves?

Answer 6

1) MC is upward sloping
2) ATC is U shaped
3) MC crosses ATC at min of ATC

Question 7

Why is the price line horizontal?

Answer 7

Because the firm is a price taker

Question 8

A ______ refers to a short run decision not to produce anything during a specific period of time because of current market conditions

Answer 8

Shutdown

Question 9

—- refers to a long run decision to leave the market

Answer 9

Exit

Question 10

—- temporarily have to pay it’s fixed costs whereas a firm that —- the market saves both fixed and variable costs

Answer 10

Shutdowns, exits

Question 11

When should you shut down in the short run?

Answer 11

If TR<AVC

Question 12

A —— is a cost that has already been committed and cannot be recovered

Answer 12

Sunk cost

Question 13

In the long run a firm will exit a market if

Answer 13

TR<ATC

Question 14

What does the market supply curve reflect when the number of firms in a market is fixed?

Answer 14

The individual firms marginal coat curves

Question 15

What does price equal in the long run in an entry/exit market?

Answer 15

The minimum of average total cost

Question 16

T or F The only requirement for a market to be perfectly competitive is for the market to have many buyers and sellers.

Answer 16

F

Question 17

T or F For a competitive firm, marginal revenue equals the price of the good it sells.

Answer 17

T

Question 18

T or F If a competitive firm sells three times the amount of output, its total revenue also increases by a factor of three.

Answer 18

T

Question 19

T or F A firm maximizes profit when it produces output up to the point where marginal cost equals marginal revenue.

Answer 19

T

Question 20

T or F If marginal cost exceeds marginal revenue at a firm’s current level of output, the firm can increase profit if it increases its level of output.

Answer 20

F

Question 21

T or F A competitive firm’s short-run supply curve is the portion of its marginal cost curve that lies above its average total cost curve.

Answer 21

F

Question 22

T or F A competitive firm’s long-run supply curve is the portion of its marginal cost curve that lies above its average variable cost curve.

Answer 22

F

Question 23

T or F In the short run, if the price a firm receives for a good is above its average variable costs but below its average total costs of production, the firm will temporarily shut down.

Answer 23

F

Question 24

T or F In a competitive market, both buyers and sellers are price takers.

Answer 24

T

Question 25

T or F In the long run, if the price firms receive for their output is below their average total costs of production, some firms will exit the market.

Answer 25

T

Question 26

T or F In the short run, the market supply curve for a good is the sum of the quantities supplied by each firm at each price.

Answer 26

T

Question 27

T or F The short-run market supply curve is more elastic than the long-run market supply curve.

Answer 27

F

Question 28

T or F In the long run, perfectly competitive firms earn small but positive economic profits.

Answer 28

T

Question 29

T or F In the long run, if firms are identical and there is free entry and exit in the market, all firms in the market operate at their efficient scale.

Answer 29

T

Question 30

T or F If the price of a good rises above the minimum average total cost of production, positive economic profits will cause new firms to enter the market, which drives the price back down to the minimum average total cost of production.

Answer 30

T