Chapter 14

Question 1

competitive market

Answer 1

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

Question 2

characteristics of a competitive market

Answer 2

1. many buyers and sellers in the market
2. goods offered by the various sellers are largely the same
3. firms can freely enter and exit the market

Question 3

average revenue

Answer 3

total revenue / quantity sold

Question 4

marginal revenue

Answer 4

the change in total revenue from an additional unit sold

Question 5

sunk cost

Answer 5

a cost that has already been committed and cannot be recovered

Question 6

(LR) enter if

Answer 6

P > ATC

Question 7

Profit in a competitive firm

Answer 7

(P-ATC) X Q

Question 8

general rules for profit maximization

Answer 8

1. if MR > MC, firm should increase its output
2. if MC > MR, firm should decrease its output
3. at profit-maximizing level of output, MR and MC are exactly equal

Question 9

LR exit if

Answer 9

the revenue it would get from producing is less than its total cost ( P

Question 10

SR Shutdown if

Answer 10

the revenue that it would earn from producing is less than the variable costs of production P