Chapter 12: Perfect Competition and the Supply Curve

Question 1

Price-taking producer

Answer 1

producer whose actions have no effect on the market price of the good/service it sells

Question 2

Price-taking consumer

Answer 2

consumer whose actions have no effect on market prices of good/service they buy

Question 3

Perfectly Competitive Market

Answer 3

market in which all market participants are price-takers

Question 4

Perfectly Competitive Industry

Answer 4

industry in which producer are price-takers

Question 5

Market Share

Answer 5

fraction of total industry output by that producer

Question 6

2 Necessities for Perfect Competition

Answer 6

1) contains many producers who do not have large market share
2) products of all producers to be “equivalent”
- “commodity” or “standardized product”

Question 7

Free Entry and Exit

Answer 7

characteristic of perfect competition

Question 8

Marginal Revenue

Answer 8

change in TR/ change in Q

-change in TR by additional unit of output

Question 9

Optimal Output Rule of Price-Taking Firms

Answer 9

MR = MC, profit maximizing point

Question 10

Profitable if

Answer 10

Market price of good is greater than firm’s minimum average total cost

• TR > TC –> profit
• TR = TC –> break-even
• TR < TC –> loss
• P(price) > ATC –> profit
• P = ATC –> break-even
• P < ATC –> loss

Question 11

Profit per unit

Answer 11

TR/Q - TC/Q

Question 12

Profit

Answer 12

(P - ATC) * Q

Question 13

Break-even price

Answer 13

minimum average total cost, price at which 0 profit is made

Question 14

Minimum AVC

Answer 14

equal to the shut-down price

-price at which firm ceases production in short-run

Question 15

Industry Supply Curve

Answer 15

relationship between price and total output of industry as a whole
-“the supply curve”

Question 16

Short-run Industry Supply Curve

Answer 16

quantity supplied by industry depends on market price given fixed # of producers

Question 17

Short-run Market Equilibrium

Answer 17

when Quantity supplied = quantity demanded with # of producers given

Question 18

Long-Run Industry Supply Curve

Answer 18

shows how the quantity supplied responds to the price once producers have had time to enter/exit the industry.
-profit falls with the entry of producers

Question 19

Long-Run Market Equilibrium

Answer 19

when Quantity supplied = quantity demanded, given that time has elapsed for entry or exit from industry to occur
- in the end equals 0, the break-even point