Ch. 12 Perfectly Competitive Market

Question 1

Market Structures (4)

Answer 1

1. Perfect Competition
2. Monopolistic Competition
3. Oligopoly
4. Monopoly

Question 2

Perfectly Competitive Market

Answer 2

a market that (1) has many buyers and sellers, (2) all selling identical products, and (3) no barriers to new firms entering

Question 3

Industry

Answer 3

all the firms selling a particular good or service

Question 4

Characteristics of Perfect Competition

Answer 4

• many firms
• identical products
• high ease of entry to the market
• ex. agriculture sales

Question 5

Characteristics of Monopolistic Compeition

Answer 5

• many firms
• differentiated products
• high ease of entry to market
• ex. clothing stores, restruants

Question 6

Characteristics of Oligolpoly

Answer 6

• few firms
• products may be identical or differentiated
• low ease of market entry
• ex. automobiles, computers

Question 7

Characteristics of Monopolies

Answer 7

• one firm
• unique product
• entry of new firms blocked
• ex. water, first class mail

Question 8

Price Taker

Answer 8

buyer or seller that is unable to affect the market place

Question 9

Profit

Answer 9

total revenue minus total cost

Question 10

Average Revenue (AR)

Answer 10

total revenue divided by quantity of product sold

Question 11

Marginal Revenue (MR)

Answer 11

the change in total revenue from selling one more unit of product

Question 12

?Sunk Cost

Answer 12

cost that has already been paid and cannot be recovered

Question 13

?Economic Profit

Answer 13

a firm’s revenues minus all its costs, implicit and explicit

Question 14

?Long-Run Competitive Equilibrium

Answer 14

situation where the entry and exit of firms has resulted in the typical firm breaking even

Question 15

?Long-Run Supply Curve

Answer 15

curve that shows the relationship in the long run between market price and quantity supplied

Question 16

?Productive Efficeiny

Answer 16

when a good or service is produced at the lowest possible cost

Question 17

?Allocative Efficiency

Answer 17

• state of economy when production represents consumer preferences
• production up to where consumer marginal benefit equals production marginal cost

Question 18

Profit Maximizing Level is…(in general, 2)

Answer 18

1. At the level of output where the positive difference between total revenue and total cost is greatest.
2. At output level where marginal revenue equals marginal cost (optimal decisions at the margin)
   - these are true for ALL markets

Question 19

Profit Maximizing in Perfect Competition

Answer 19

FOR PERFECT COMPETITION ONLY

Price = Avg Revenue = Marginal Revenue = Marginal Cost