Chapter 12

Question 1

Assumptions of a perfectly competitive market

Answer 1

1. Many buyers and sellers
2. identical products
3. Easy entry and exit

Question 2

Price takers must do what?

Answer 2

accept the market price because their influence is insignificant

Question 3

Perfectly competitive markets generally consist of a ___ number of ____ suppliers

Answer 3

large; small

Question 4

When market price decreases ( as a result of demand decreasing) the price taking firm will receive a ___ price for all of its output

Answer 4

lower

Question 5

In a perfectly competitive market, market demand curve is ____ sloping, and individual demand curve is ______

Answer 5

downward, horizontal

Question 6

Total revenue is what?

Answer 6

The product price times the quantity sold

TR = P x q

Question 7

Average revenue is what?

Answer 7

Total revenue divided by the number of units sold

TR / q

Question 8

Marginal revenue is what?

Answer 8

the increase in total revenue resulting from a ONE UNIT increase in sales

MR = change in TR / change in q

Question 9

Marginal revenue is ____ at all outputs and ___ to average revenue

Answer 9

constant, equal

Question 10

P = __ = AR

Answer 10

MR

Question 11

What is the profit maximizing level of output?

Answer 11

MR = MC . occurs at output q*

Question 12

A firm can add to its total profits as long as:

Answer 12

MR > MC (all the way to q*)

Question 13

If P > AVC, what should the firm do?

Answer 13

Continue to produce

Question 14

If P

Answer 14

Shut down

Question 15

Shutting down occurs in the ___ run, while exiting the market occurs in the ___ run

Answer 15

short; long

Question 16

The short run supply curve is where?

Answer 16

the portion of the MC curve above the AVC curve

Question 17

The short run market supply curve is what?

Answer 17

the summation of the individual firms’ supply curves in the market

Question 18

When firms exit the market, what happens to price and market output?

Answer 18

Price increases and market output decreases

Question 19

When is there no tendency for firms to enter/exit the market?

Answer 19

at zero economic profit

Question 20

Where does equilibrium output occur?

Answer 20

the lowest point on the average total cost curve

Question 21

an industry where input prices (and cost curves) do not change as industry output changes

ex paper clip factories

Answer 21

constant cost industry

Question 22

an industry where input prices rise (and cost curves rise) as industry output rises

ex wheat industry
LR supply curve slopes up

Answer 22

increase cost industry

Question 23

an industry where input prices (and cost curves) fall as industry output rises

ex mining regions getting a railroad
LR supply curve is downward sloping

Answer 23

decrease cost industry