Chapter 12- Firms in Perfectly Competitive Markets Flashcards
Perfect competition is a market structure involving a(n) _____ number of buyers and seller, a(n) _____ product, and _____ market entry and exit.
large; homogenous (standardized); easy
Perfectly competitive firms are _____, who must accept the market price as determined by the forces of demand and supply.
price takers
Because perfectly competitive markets have _____ buyers and sellers, each firm is so _____ in relation to the industry that its production decisions have no impact on the market.
many; small
Because consumers believe that all firms in a perfectly competitive market sell _____ products, the products of all the firms are perfect substitutes.
identical (homogenous)
Because of _____ market entry and exit, perfectly competitive markets generally consists of a(n) _____ number of small suppliers.
easy; large
In a perfectly competitive industry, each producer provides such a(n) _____ fraction of the total supply that a change in the amount he or she offers does not have a noticeable effect on the market price.
small
Because perfectly competitive sellers can sell all they want at the market price, their demand curve is _____ at the market price over the _____ range of output that they could possibly produce.
horizontal; entire
The objective of a firm is to maximize profits by producing the amount that maximizes the difference between its _____ and _____.
total revenues; total costs
Total revenue for a perfectly competitive firm equals the _____ times the _____.
market price; quantity of units sold
_____ equals the total revenue divided by the number of units of the product sold.
average revenue
_____ is the additional revenue derived from the sale of one more unit of the good.
marginal revenue
In perfect competition, we know that _____ and price are equal.
marginal revenue
In all type of market environments, firms will maximize profits at that output which maximizes the difference between _____ and _____, which is the same output level where _____ equals _____.
total revenue; total costs; marginal revenue; marginal costs
At the level of output chosen by a competitive firm, total cost equals _____ times quantity, while total revenue equals _____ times quantity.
average total cost; the market price
If total revenue is greater than total costs at its profit-maximizing output level, a firm is generating _____. If total revenue it less than total costs, the firm is generating _____. If total revenue equals total costs, the firm is earning _____.
economic profits; economic losses; zero economic profits
If a firm cannot generate enough revenues to cover its _____ costs, then it will have larger losses if it operates than if it shuts down in the short run.
variable
The loss a firm would bear if it shuts down would be equal to _____.
fixed costs
When price is less than _____ but more than _____, a firm produces in the short run, but at a loss.
average total costs; average variable costs
The short-run supply curve of an individual competitive seller is identical with that portion of the _____ curve that lies above the minimum of the _____ curve.
marginal cost; average variable cost
The short-run market supply curve is the horizontal summation of the individual firms’ supply curves, providing that _____are not affected by increased production by existing firms.
input prices
If perfectly competitive producers are currently making economic profits, the market supply curve will shift to the right over time as more firms _____ and existing firms _____.
enter the industry; expand
As entry into a profitable industry pushes down the market price, producers will move from a situation where price _____ average total cost to one where price _____ average total cost.
exceeds; equals
Only at _____ is the tendency for firms either to enter or leave the business eliminated.
zero economic profits
The long-run equilibrium output in perfect competition occurs at the lowest point on the average total cost curve, so the equilibrium condition in the long run in perfect competition is for firms to produce at the output that minimizes the _____.
average total cost curve
The shape of the long-run supply curve depends on the extent to which _____ change with the entry or exit of firms in the industry.
input costs
In a constant-cost industry, the prices of inputs _____ as output is expanded.
do not change
In an increasing-cost industry, the cost curves of the individual firms _____ as the total output of the industry increases.
rise
There is a _____ efficiency in perfect competition because the firm produces at the minimum of the ATC curve.
productive
There is _____ efficiency in perfect competition because P=MC and production is allocated to reflect consumers’ wants.
allocative
Once the competitive equilibrium is reached, the buyers’ _____ equals the sellers’ _____.
marginal benefit; marginal cost
A perfectly competitive firm that takes the prices it is given bu the intersection of the market demand and market supply curve.
price takers
The product price times the quantity sold.
total revenue
Total revenue divided by the number of units sold.
average revenue
The increase in total revenue resulting from a one-unit increase in sales.
marginal revenue
A firm should always produce at the output where MR = MC
profit-maximizing level of output
The portion of the MC curve above the AVC curve.
short-run supple curve
The horizontal summation of the individual firms’ supple curves in the market.
short-run market supple curve
An industry where input prices (and cost curves) do not change as industry output changes.
constant-cost industry
An industry where input prices rise (and cost curves rise) as industry output rises.
increasing cost-industry
Where a good or service is produced at the lowest possible cost.
productive efficiency
Where P = MC and production will be allocated to reflect consumer preferences.
allocative efficiency
