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ECON111 > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

How do farmers respond to difficulty in making money?

A

Switch crops

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2
Q

What happens to positive economic profits in the long run?

A

Attract competition

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3
Q

What happens to total cost at higher levels of output?

A

Slopes upward more steeply

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4
Q

How is profit calculated?

A

Total revenue minus total cost

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5
Q

What remains constant as the firm produces more output under perfect competition?

A

Marginal Revenue

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6
Q

What is the profit-maximizing condition for a perfectly competitive firm?

A

MR = MC

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7
Q

What does it indicate when price intersects marginal cost above the average cost curve?

A

Firm is making a profit

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8
Q

What is the break even point?

A

Price = Average Cost

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9
Q

What happens when price > average cost?

A

Firm earns profits

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10
Q

What is the shutdown point?

A

Intersection of AVC and MC

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11
Q

What is the market price for a firm in perfect competition?

A

Constant / Given

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12
Q

What do losses cause businesses to do?

A

Flee

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13
Q

What is the zero-profit level?

A

No economic profits

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14
Q

What happens to costs when demand for skilled labor rises?

A

Costs increase

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15
Q

In a perfectly competitive market, what is price equal to?

A

Marginal cost of production

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16
Q

What causes firms to exit the market?

A

Economic losses

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17
Q

Where does maximum profit occur?

A

Largest difference between TR and TC

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18
Q

What is a perfectly competitive firm’s pricing behavior?

A

Price taker

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19
Q

What happens when price equals average cost?

A

Firm is breaking even

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20
Q

If Price > ATC, what will the firm earn?

A

Economic profit

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21
Q

What happens when a firm operates below the break-even point?

A

It incurs a loss.

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22
Q

When does a firm stay in business?

A

Price > minimum average variable cost

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23
Q

How is total revenue calculated for a firm in perfect competition?

A

Price multiplied by quantity

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24
Q

What is the long-run response to sustained losses?

A

Cease production

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25
Q

What condition allows firms to continue producing?

A

P = MR = MC & cover AVC

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26
Q

What is the long-run outcome in a constant-cost industry?

A

More output at same price

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27
Q

What is the long-run equilibrium condition in perfectly competitive markets?

A

Economic profits zero

28
Q

What happens when MR > MC?

A

Increase profit by increasing output

29
Q

What does it indicate when price intersects marginal cost below the average cost curve?

A

Firm is making a loss

30
Q

If Price = ATC, what will the firm earn?

A

Zero economic profit

31
Q

What are the two options for a firm operating at a loss?

A

Continue producing or shutdown.

32
Q

What determines output level in a perfectly competitive firm?

A

P = MR = MC

33
Q

What happens if marginal costs increase at all output levels?

A

Firm produces less

34
Q

Why do firms cease to exist?

A

Lack of profitability

35
Q

What ends the process of rising prices?

A

Zero-profit level

36
Q

What is the shape of the LRS curve in perfectly competitive markets?

A

Flat curve

37
Q

What are the characteristics of a perfectly competitive market?

A

Many firms, identical products, free entry/exit

38
Q

What determines a perfectly competitive firm’s level of profits?

A

Total revenue and total costs

39
Q

What type of demand curve does a firm in perfect competition face?

A

Perfectly elastic demand

40
Q

What happens when MC > MR?

A

Increase profit by reducing output

41
Q

What is the rule for a profit-maximizing perfectly competitive firm?

A

Price = MR = MC

42
Q

If Price < ATC, what will the firm earn?

A

A loss

43
Q

What happens when market price is above the break even point?

A

Firm earns profits

44
Q

What does P > AVC but P < ATC indicate?

A

Continue producing, economic losses

45
Q

What is the main measurement for business operation?

A

Profits

46
Q

What drives price to the zero-profit point in perfectly competitive markets?

A

Entry and exit

47
Q

What does P < MC indicate?

A

Marginal costs exceed societal benefits

48
Q

What is a perfectly competitive firm known as?

A

Price taker

49
Q

How does revenue change with each additional unit sold by a firm in perfect competition?

A

Increases by market price

50
Q

What occurs at MR = MC?

A

Profit-maximizing output

51
Q

What is the profit-maximizing rule for a perfectly competitive firm?

A

P = MC

52
Q

What happens to variable costs when shutting down?

A

Reduce to zero

53
Q

What occurs at the break even point?

A

Zero profits

54
Q

What happens if P < AVC?

A

Stops producing, incurring fixed costs

55
Q

What happens to firms that cannot make money?

A

Exit the market

56
Q

What is the long-run equilibrium condition in a constant-cost industry?

A

New price equals old price

57
Q

What is achieved in perfectly competitive markets?

A

Productive and allocative efficiency

58
Q

Who determines the market price of wheat?

A

Supply and demand

59
Q

What indicates a positive profit margin?

A

Price > Average Cost

60
Q

What happens if price falls below the shutdown point?

A

Firm shuts down

61
Q

Can a perfectly competitive firm affect market price alone?

A

No

62
Q

What does productive efficiency mean?

A

Producing without waste

63
Q

Which market is commonly used as an example of perfect competition?

A

Agricultural markets

64
Q

What indicates a negative profit margin?

A

Price < Average Cost

65
Q

What is perfect competition considered?

A

Hypothetical benchmark

66
Q

What type of demand curve does a perfectly competitive firm face?

A

Perfectly elastic

ECON111 (31 decks)

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