Chapter 7: The Competitive Firm

Question 1

revenue curve

Answer 1

shows relationship between revenue and output

Question 2

marginal revenue

Answer 2

extra revenue that a firm receives from selling an extra unit

Question 3

marginal cost curve

Answer 3

supply curve

Question 4

price exceeds minimum average costs

Answer 4

it pays for firm to enter market

Question 5

sunk costs

Answer 5

costs that are not recoverable, even if a firm goes out of business

Question 6

firm with no sunk costs

Answer 6

exits market when price falls below minimum average costs

Question 7

firm with sunk costs

Answer 7

exits market when price falls below minimum average variable costs

Question 8

accounting profits

Answer 8

revenues minus expenditures

Question 9

economic profits

Answer 9

revenues minus rents minus economic costs (including opportunity costs of labor and capital)

Question 10

economic rent

Answer 10

difference between the price that is actually paid and the price that would have to be paid in order for the good or service to be produced

Question 11

very short run supply

Answer 11

only price can change, firms cannot necessarily adjust production at all

Question 12

short run supply

Answer 12

firm may be able to hire labor and adjust variable inputs

Question 13

long run supply

Answer 13

firms may be able to buy more machines, and decide to enter or exit the market

Question 14

Competition leads to entry

Answer 14

up to the point where there are zero profits