Chapter 6: Perfectly Competitive Supply

Question 1

consumers will buy one more unit if

Answer 1

the marginal benefit is greater than or equal to the price

Question 2

sellers will sell one more unit if

Answer 2

the marginal benefit (price) is greater than or equal to the marginal cost of production

Question 3

reservation price

Answer 3

highest price a buyer will pay or lowest price a seller will accept

Question 4

most goods and services are sold by

Answer 4

profit-maximizing firms

Question 5

profit (equation)

Answer 5

total revenue - total cost
P(Q) - TC
total cost includes implicit and explicit costs

Question 6

(perfectly competitive firms) standardized products

Answer 6

• identical goods offered by many sellers
• no loyalty to your supplier

Question 7

(perfectly competitive firms) many buyers, many sellers

Answer 7

• each has small market share
• no buyer or seller can influence price

Question 8

(perfectly competitive firms) mobile resources

Answer 8

• inputs move to their highest value use
• firms freely enter and leave industries

Question 9

(perfectly competitive firms) informed buyers and sellers

Answer 9

• buyers know market prices
• sellers know all opportunities and technologies

Question 10

perfectly competitive firm

Answer 10

a company operating in a market where numerous sellers offer identical products, meaning the firm has no control over the market price, essentially acting as a “price taker”

Question 11

(time horizons in production) short run

Answer 11

period of time where at least one of the firm’s factors of production is fixed (cannot be changed)

Question 12

(time horizons in production) long run

Answer 12

period of time in which all inputs are variable