Chapter 7: MARKET STRUCTURES, PERFECT COMPETITION, + LONG RUN SUPPLY

Question 1

A market is more concentrated when there are fewer firms competing in it; the concentration is lower when there are more firms

Answer 1

industry concentration

Question 2

The phenomenon in which the amount of time required to complete a task reduces as you gain experience; corresponds to a downward-sloping average cost curve

Answer 2

learning by doing

Question 3

When a firm creates a new market with new goods (e.g., Apple’s iPhone)

Answer 3

market making

Question 4

Goods, services, and capital are being allocated in the best way possible on the production possibility frontier (PPF)

Answer 4

allocative efficiency

Question 5

Occurs at maximum efficiency when it is impossible to make one party better off without making someone worse off

Answer 5

pareto efficiency

Question 6

An outcome where at least one person could be better off without making anyone else worse off

Answer 6

pareto-superior outcome

Question 7

Goods are being produced at the lowest cost of production

Answer 7

productive efficiency

Question 8

Expanding all inputs proportionately does not change the average cost of production

Answer 8

constant returns to scale

Question 9

Resources that firms use to produce their products, for example, labor and capital

Answer 9

factors of production (or inputs)

Question 10

Factors of production that can’t be easily increased or decreased in a short period of time

Answer 10

fixed inputs

Question 11

Period of time during which all of a firm’s inputs are variable

Answer 11

long run

Question 12

The gap between average variable costs and average total costs

Answer 12

average fixed cost

Question 13

Profit divided by the quantity of output produced; also known as profit margina

Answer 13

average profit

Question 14

Total cost divided by the quantity of output

Answer 14

average total cost

Question 15

Variable cost divided by the quantity of output; total costs - fixed costs / quantity of output

Answer 15

average variable cost

Question 16

Level of output where the marginal cost curve intersects the average cost curve at the minimum point of AC; if the price is at this point, the firm is earning zero economic profits

Answer 16

break even point

Question 17

General rule that as a firm employs more labor, eventually the amount of additional output produced declines

Answer 17

diminishing marginal productivity

Question 18

Level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price is below this point, the firm should shut down immediately

Answer 18

shutdown point

Question 19

The horizontal sum of all the supply curves for the many firms in a perfectly competitive industry

Answer 19

total supply in the industry

Question 20

A firm in a perfectly competitive market that must take the prevailing market price as given; a firm that takes the constant price as given where demand intersects with supply

Answer 20

price taker

Question 21

Change in total cost divided by change in quantity; the change in total cost for a unit change in output (the slope of the total cost curve); the additional cost of producing one more unit

Answer 21

marginal cost

Question 22

Total revenues minus explicit costs, including depreciation

Answer 22

accounting profit

Question 23

Total revenue divided by the quantity of output; equal to the price a firm charges for its goods

Answer 23

average revenue

Question 24

Cost of the fixed inputs; expenditure that a firm must make before production starts and that does not change regardless of the production level

Answer 24

fixed cost

Question 25

The additional revenue gained from selling one more unit; the change in total revenue for a unit change in output (the slope of the total revenue curve); mr(qi) = ΔR/Δqi

Answer 25

marginal revenue

Question 26

A market structure in which firms are producing differentiated goods in an industry; in these types of market structures, the firm has a downward-sloping demand curve and a downward-sloping marginal revenue curve (inside its demand curve)

Answer 26

monopolistic competition

Question 27

Price determined by the total output

Answer 27

p(Q)

Question 28

Any gap between the revenue and cost

Answer 28

profits

Question 29

The sum of every firm's quantity in an industry; Q = q1 + q2 + ... + qn

Answer 29

Q

Question 30

A firm's output

Answer 30

qi

Question 31

Fixed costs + variable costs

Answer 31

total cost

Question 32

The price at which we sell a good multiplied by the quantity sold

Answer 32

total revenue

Question 33

Total revenues minus total costs (explicit plus implicit costs)

Answer 33

economic profit

Question 34

Goods that are in the same industry but that are different in some way; e.g., computers (Mac or PC), sodas (Coca Cola or Pepsi), fashion brands, car models

Answer 34

differentiated good

Question 35

The long-run process of firms entering an industry in response to industry profits

Answer 35

entry

Question 36

The long-run process of firms reducing production and shutting down in response to industry losses

Answer 36

exit

Question 37

An organization that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs

Answer 37

firm

Question 38

A firm that is already in an industry

Answer 38

incumbent firm

Question 39

Period of time during which all of a firm's inputs are variable

Answer 39

long run

Question 40

Where all firms earn zero economic profits producing the output level where P = MR - MC and P = (TR / TO) - AC

Answer 40

long-run equilibrium

Question 41

Result in an easy to enter industry

Answer 41

low barriers to entry

Question 42

The conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold

Answer 42

market structure

Question 43

One big firm makes up an industry

Answer 43

monopoly

Question 44

A few firms make up an industry

Answer 44

oligopoly

Question 45

Each firm faces many competitors that sell identical products

Answer 45

perfect competition

Question 46

The process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs

Answer 46

production

Question 47

Obstacles such that an industry is difficult to enter

Answer 47

significant barriers to entry

Question 48

Defined by a specific set of characteristics/rules; the particular seller of these goods does not impact the quality or characteristics of the good (in a substantial way)

Answer 48

standardized or homogeneous good

Question 49

A firm’s shutdown point occurs where ______________.

Answer 49

Price equals average variable cost

Question 50

A firm’s profit margin is defined as ______________.

Answer 50

The difference between price and average cost at a given level of output