Chapter 14 - Firms in Competitive Markets

Question 1

Market Power

Answer 1

A firm has this if it can influence the market price of the good it sells

Question 2

Competitive Market

Answer 2

1. ) Many buyers and many sellers
2. ) The goods offered by 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
OR
The Price of the good ((P x Q)/Q) = P

Question 4

Marginal Revenue

Answer 4

The change in total revenue from an additional unit sold
OR
Price of the good

Question 5

Profit is maximized by producing quantity at which ____ = ____.

Answer 5

Marginal Cost, Marginal Revenue

Question 6

If MR > MC, the firm should _____ output.

Answer 6

Increase

Question 7

If MR < MC, the firm should _____ output.

Answer 7

Decrease

Question 8

If MR = MC, the firm is at its’ ________.

Answer 8

Profit maximizing level.

Question 9

Shutdown

Answer 9

Short-run decision not to produce anything

Question 10

Exit

Answer 10

Long-run decision to leave the market

Question 11

Shut down if _____ < _____?

Answer 11

Price, Average Variable Cost

Question 12

Sunk Cost

Answer 12

A cost that has already been committed and cannot be recovered

Question 13

Exit if _____ > ______?

Answer 13

Price, Average Total Cost

Question 14

Profit = ?

Answer 14

(Price - Average Total Cost) x Quantity

Question 15

Process of entry & exit ends only when _____ & _____ are equal.

Answer 15

Price, Average Total Cost

Question 16

In the long-run equilibrium of a competitive market with free entry & exit, firms must be operating at their ________.

Answer 16

Efficient scale