Chapter 8 Flashcards
A firm that makes zero economic profits
covers all its costs, including a provision for normal profit.
Normal profit
includes the full opportunity cost of the resources used by the firm.
(Table 22.1) The accounting profit is equal to
$925.
(Table 22.1) Suppose the entrepreneur could earn $1,000 as an employee elsewhere. This means the economic profit is
−$75.
Market structure is determined by the
number and relative size of the firms in an industry.
In which of the following types of markets does a single firm have the most market power?
monopoly
A perfectly competitive firm is a price taker because
the price of the product is determined by many buyers and sellers.
Competitive firms cannot individually affect market price because
their individual production is insignificant relative to the production of the industry.
The demand curve for each perfectly competitive firm is
horizontal.
The demand curve confronting a competitive firm
equals the marginal revenue curve.
A firm maximizes profit when
total revenue exceeds total cost by the greatest amount.
(Figure 22.1) The total fixed costs for this firm are approximately
$50.
(Figure 22.1) The profit-maximizing output for this firm is
200 units.
Marginal revenue is the change in
total revenue when the output is changed.
For the perfectly competitive firm, the marginal revenue is always
constant.
Short-run profits are maximized at the rate of output where the
marginal revenue is equal to the marginal cost.
A perfectly competitive firm should expand output when
P > MC.
(Figure 22.2) For a perfectly competitive firm, the profit-maximizing quantity of output is
D.
(Figure 22.3) For a perfectly competitive firm, if the market price is $15,
economic profits will be zero.
(Figure 22.3) For a perfectly competitive firm, if the market price is $23,
the firm will have above-normal profits.
(Figure 22.3) A perfectly competitive firm should shut down at any price below
$10
(Figure 22.3) For a perfectly competitive firm, at a market price of $23, the profit per unit is maximized at an output of
31 Units
(Figure 22.3) For a perfectly competitive firm, at a market price of $23, the total profits are maximized at an output of
39
(Figure 22.3) For a perfectly competitive firm, the law of diminishing returns takes effect at an output of
13
