Chapter 7

Question 1

What is market structure based off of?

Answer 1

number of firms, standard or differentiated product, ease of entry

Question 2

Formula for total revenue

Answer 2

TR= P x Q

Question 3

Formula for average revenue

Answer 3

AR= TR/Q= P

Question 4

Formula for marginal revenue

Answer 4

MR= change in TR/ change in Q= P

Question 5

What is marginal revenue?

Answer 5

additional revenue that firm receives by producing one more unit of output

Question 6

Formula for economic profit

Answer 6

= (P- change in TC) Q

Question 7

What does the demand curve look like for a purely competitive seller?

Answer 7

horizontal line, can sell as much output as it wants with current market price (D=P=MR=AR)

Question 8

Definition of short -run profit maximization

Answer 8

a price-taking firm maximizes its economic profit by adjusting its output quantity (only through change in amount of variable inputs used)

Question 9

What should a firm compare to max out profit?

Answer 9

marginal revenue and marginal cost

Question 10

Where is the break even point for a perfectly competitive firm on the short-run supply curve?

Answer 10

where ATC and MC intersect

Question 11

where is the shut down point for a perfectly competitive firm on the short-run supply curve?

Answer 11

where AVC and MC intersect

Question 12

Basic assumptions for profit maximization in the long-run of a perfectly competitive firm(3)

Answer 12

1) entry and exit only
2) identical costs for all firms
3) constant-cost industry (entry and exit of firms do not effect resource prices)

Question 13

Basic results for profit maximization in the long-run of a perfectly competitive firm (3)

Answer 13

1) entry eliminates economic profit: firms enter, supply increases, and price falls
2) exit eliminates economic losses: firms exits, supply decreases, price rises
3) after all long-run adjustments are completed in a purely competitive industry, product price with be EQUAL TO the firm’s ATC and production will occur at the firm’s minimum ATC curve.

Question 14

Long-run supply curve for constant-cost industries

Answer 14

entry and exit do not affect resource prices and thus, do not affect long-run ATC of individual firms

Question 15

Long-run supply curve for increasing-cost industries

Answer 15

entry (exit) increases (decreases) resource prices and thus increases (decreases) long-run ATC of individual firms

Question 16

Long-run supply curve for decreasing-cost industries

Answer 16

entry (exit) decreases (increases) resource prices and thus decreases (increases) long-run ATC of individual firms

Question 17

Number of firms in a perfect competition market structure

Answer 17

many

Question 18

number of firms in a monopolistic competition market structure

Answer 18

many

Question 19

number of firms in an oligopoly market structure

Answer 19

few

Question 20

Type of product in a perfect competition market structure

Answer 20

same

Question 21

Type of product in a monopolistic competition market structure

Answer 21

different

Question 22

Type of product in an oligopoly

Answer 22

same or differentiated

Question 23

Type of product in a monopoly

Answer 23

unique

Question 24

Price setting power in perfect competition

Answer 24

None (price taker)

Question 25

Price setting power in monopolistic competition

Answer 25

Some

Question 26

Price setting power in an oligopoly

Answer 26

limited (more collusion)

Question 27

Price setting power in a monopoly

Answer 27

Major

Question 28

Non-price competition in perfect competition

Answer 28

none

Question 29

Non-price competition in monopolistic competition

Answer 29

ads, brands

Question 30

Non-price competition in an oligopoly

Answer 30

major

Question 31

Non-price competition in a monopoly

Answer 31

PR only

Question 32

Which market structure has both productive and allocative efficiency?

Answer 32

perfect competition

Question 33

Is there a long-run profit in pure competition?

Answer 33

no

Question 34

Is there a long-run profit in monopolistic competition?

Answer 34

no

Question 35

Is there a long-run profit in an oligopoly?

Answer 35

It is likely

Question 36

Is there a long-run profit in a monopoly?

Answer 36

yes

Question 37

When will short-run profit be positive or negative?

Answer 37

Profit if AR>ATC | Profit if P>ATC

Question 38

Where will all firms produce in the short run?

Answer 38

where MR=MC

Question 39

Where will competitive firms product in the short-run?

Answer 39

Where P=MC

Question 40

What is the triple equality?

Answer 40

P=MC=Min ATC

Question 41

Where does the triple equality hold true?

Answer 41

Only in constant-cost and increasing-cost industries

Question 42

Why doesn't the triple equality hold true for decreasing-cost industries?

Answer 42

Because MC always remains below ATC if average costs are decreasing

Question 43

When is there allocative and productive efficiency in pure competition?

Answer 43

When the economy is composed of increasing-cost or constant-cost industries

Question 44

How do consumers benefit from productive efficiency?

Answer 44

By paying the lowest product price possible

Question 45

When does allocative efficiency occur?

Answer 45

When it is impossible to produce any net gains for society by altering the combination of goods and services that are produced from society's limited resources