Chapter 16: Firm supply

Question 1

technological constraints

Answer 1

Firms face technological constraints because there are only certain feasible
combinations of inputs and outputs.

Question 2

market constraints

Answer 2

Firms face market constraints because they can sell only as much as people
are willing to buy.

Question 3

demand curve facing a firm

Answer 3

The demand curve facing a firm is the relationship between the price a firm
sets and the amount that it sells.

Question 4

market environment

Answer 4

The term market environment is used to describe the ways that firms respond
to each other when they make their price and output decisions.

Question 5

perfect competition

Answer 5

There is perfect competition in a market if each firm assumes that the market
price is independent of its own level of output.

This is the case in industries composed of many firms that produce an identical
product and where each firm is a small part of the market.2

Question 6

price takers

Answer 6

Firms are price takers. They take the price as given. Firms only care about
how much to produce.

Question 7

The market demand curve

Answer 7

The market demand curve measures the relationship between the market price
and the total amount of output sold.

Question 8

The demand curve facing a firm

Answer 8

The demand curve facing a firm measures the relationship between the
market price and the output of that particular firm.