Chapter 15- Perfect Competition

Question 1

Perfect competition
Monopoly
Monopolistic competition
Oligopoly

Answer 1

4 market types

Question 2

Exists when many firms sell an identical product to buyers
No restrictions on entry or exit from the market
Established firms have no advantage over new firms
Sellers and buyers are well informed about prices

Answer 2

Perfect Competition

Question 3

A market for a good or service that has no close substitutes

There is one supplier that is protected from competition by a barrier that prevents the entry of new firms

Answer 3

Monopoly

Question 4

Many firms compete by making similar, but slightly different products

Answer 4

Monopolistic competition

Question 5

A market in which a small number of firms compete

Answer 5

Oligopoly

Question 6

A firm that cannot influence the price of the good or service that it produces
The firm in perfect competition is a price taker firm

Answer 6

Price taker firm

Question 7

Change in total revenue that results from a one unit increase in the quantity sold

Answer 7

Marginal revenue

Question 8

As output increases, total revenue increases, total cost increases too
Total cost increases faster than total revenue because of decreasing marginal returns

Answer 8

As output increases, total revenue increases, total cost increases too
Total cost increases faster than total revenue because of decreasing marginal returns

Question 9

Find the profit maximizing output by using a firms’s total revenue and total cost curves
Profit is maximized at the output level when total revenue exceeds total cost by the largest amount
When difference between total revenue and total cost is greatest, profit is maximized

Answer 9

Profit maximizing output

Question 10

Marginal cost increases if output increases

Profit is maximized when marginal revenue equals marginal cost

Answer 10

Trends

Question 11

If a firm shuts down temporarily, it incurs an economic loss equal to total fixed cost
If firm produces some output, it incurs an economic loss equal to
TFC+TVC- total revenue

Answer 11

If firm shuts down

Question 12

The point at which Average Variable Cost=marginal revenue
Where AVC curve and marginal revenue line meet on the graph
Loss= total fixed cost
At prices below the shutdown point, firms produce nothing
At prices above the shutdown point, firms produce along the Marginal Cost curve

Answer 12

Shutdown point

Question 13

At the shutdown price, it is perfectly elastic

Above the shutdown price, it slopes upward

Answer 13

The market supply curve

Question 14

When market supply and demand curves meet, they meet at a market equilibrium and establish a market price

Answer 14

Market equilibrium

Question 15

If more firms enter a market, supply increases and the supply curve shifts rightward
If firms exit a market, supply decreases and the supply curve shifts leftward

Answer 15

Firms exit and enter

Question 16

Supply curve is also called the marginal cost curve
Demand curve is also called the marginal benefit curve
When marginal benefit=marginal cost, efficient quantity is produced and total surplus(consumer and producer) is maximized

Answer 16

Relationship between supply and marginal curves