Chapter 8

Question 1

Perfect Competition

Answer 1

Large number of buyers and sellers, sellers sell identical products, no single seller controls price (market determines price)

Question 2

Profit

Answer 2

Total revenue - Total cost, maximized when marginal revenue = marginal cost and marginal cost is rising

Question 3

Abnormal Profit

Answer 3

Price > average total cost

Question 4

Normal Profit

Answer 4

“Break even”, price = average total cost

Question 5

Loss and Continue

Answer 5

Price > average variable cost and total revenue > total variable cost

Question 6

Loss and Indifferent

Answer 6

Price = average variable cost and total revenue = total variable cost

Question 7

Loss and Shutdown

Answer 7

Average variable cost > price and total variable cost > total revenue

Question 8

Shutdown Price

Answer 8

At the minimum of the average variable cost, if the price goes below it the firm will shut down

Question 9

Short Run Supply Curve of a Perfectly Competitive Firm

Answer 9

Rising part of marginal cost above the minimum average variable cost (shutdown price)

Question 10

Productive Efficiency

Answer 10

To produce with the lowest average total cost

Question 11

Allocative Efficiency

Answer 11

To produce when marginal cost = price

Question 12

Competitive Quantity

Answer 12

Maximize total surplus