Ch.12- Firms in Perfectly Competitive Markets

Question 1

Perfectly Competitive Market Rules

Answer 1

1. Many buyers and sellers exist
2. All firms sell identical products
3. There are no barriers to new firms entering the market

Question 2

Market structures

Answer 2

Model how firms in a market interact with demand side to sell their outputs

Question 3

Perfect Competition

Answer 3

Number of firms: Many
Type of product: Identical
Ease of entry: High
Examples of industries: growing wheat, poultry farming

Question 4

Monopolistic Competition

Answer 4

Number of firms: many
Type of product: differentiation
Ease of entry: high
Examples of industries: clothing stores, restaurants

Question 5

Oligopoly

Answer 5

Number of firms: few
Type of product: identical or differentiate
Ease of entry: low…
Examples of industries: manufacturing computers or automobiles

Question 6

Monopoly

Answer 6

Number of firms: one
Type of product: Unique
Ease of entry: Entry-BLOCKED BOIII
Examples of industries: Providing tap water, mail delivery

Question 7

Order of increasing market concentration

Answer 7

Perfect->Monopolistic->Oligopoly -> Monopoly

Question 8

Price takers

Answer 8

-this describes perfectly competitive firms
-unable to affect market price
-face a horizontal demand curve (perfectly elastic, or same price for each unit)

Question 9

“Invisible Hand”

Answer 9

-Adam Smith
-Guided to achieve a result that might not have been intended

Question 10

“Spontaneous order”

Answer 10

-Michael Polanyi
-equilibrium in a perfectly competitive market is achieved through interactions of many consumers and firms without any centralized decision making

Question 11

Profit max requires…

Answer 11

MR=MC!!!!!!!!!!!

Question 12

Profit

Answer 12

Total revenue-total cost (price x quantity)

Question 13

Average revenue

Answer 13

Total revenue/quantity

Question 14

Marginal Revenue

Answer 14

Change in total revenue/change in quantity

Question 15

In a PCM…

Answer 15

Price=Average revenue=marginal revenue

Question 16

When MR>MC…

Answer 16

profit increasing

Question 17

When MC>MR…

Answer 17

profit decreasing

Question 18

Maximum profit occurs when…

Answer 18

Vertical distance between TR curve and TC curve is as LARGE as possible
or
MR equals MC (or as close as possible)

Question 19

Loss

Answer 19

Fixed cost
=(ATC-AVC)(Q)

Question 20

Profit per unit of output

Answer 20

Difference between market price and atc price

Question 21

Profit=

Answer 21

(P x Q)-TC

Question 22

Profit is negative when…

Answer 22

Total cost> Total Revenue

Question 23

Profit and losses

Answer 23

-must minimize losses if not making profit
-loss inavoidable in the short run due to fixed cost

Question 24

Break-even

Answer 24

Obtaining no profit, but incurring no loss
-when price=average total cost`

Question 25

Economies of scale

Answer 25

When a firm’s long run average costs fall as it increases output

Question 26

Diseconomies of scale

Answer 26

When a firm’s LRAC rise as the firm increases output

Question 27

Constant returns to scale

Answer 27

When a firm’s LRACs remain unchanged as it increases output

Question 28

Minimum efficient scale

Answer 28

level of output at which all economies of scale are exhausted (when LRAC curve at a minimum