chap 11

Question 1

Perfect competition

Answer 1

Many firms sell identical products to many buyers.
There are no restrictions to entry into the industry.
Established firms have no advantages over new ones.
Sellers and buyers are well informed about prices.

Question 2

Perfect competition arises when…

Answer 2

The firm’s minimum efficient scale is small relative to market demand, so there is room for many firms in the market.

Question 3

Price Takers

Answer 3

a firm that cannot influence the price of a good or service.
No single firm can influence the price—it must “take” the equilibrium market price.
Each firm’s output is a perfect substitute for the output of the other firms, so the demand for each firm’s output is perfectly elastic

Question 4

Economic profit calculation

Answer 4

total revenue minus total cost.

Question 5

Total cost is?

Answer 5

opportunity cost of production, which includes normal profit.

Question 6

total revenue calculation

Answer 6

price, P, multiplied by quantity sold, Q, or P  Q.

Question 7

marginal revenue calculation

Answer 7

change in total revenue that results from a one-unit increase in the quantity sold.