Chapter 8

Question 1

Conditions for Perfect competition

Answer 1

Large number of small firms
Homogeneous products
Easy entry and exit

Question 2

Individual Firms Demand cruve

Answer 2

Demand curve is horizontal

Question 3

Marginal Revenue =

Answer 3

Price

Question 4

Maximize profit

Answer 4

MC = MR

Question 5

MR

Answer 5

increase output

Question 6

MR > MC = ? output

Answer 6

decrease output

Question 7

Keep producing as long as

Answer 7

Marginal revenue >= Marginal cost

Question 8

P > ATC, profit > 0

Answer 8

stay open

Question 9

P = ATC, profit = 0

Answer 9

stay open

Question 10

AVC

Answer 10

stay open

Question 11

P = MIN(SRAVC), profit

Answer 11

stay open (indiffence)

Question 12

P

Answer 12

shut down

Question 13

profit > ?

economic loss

Answer 13

-TFC

TFC

Question 14

Long run

profit > 0

Answer 14

Expansions of firm
Entry of new firms
Decrease of Price, Decrease of Profit

Question 15

Long run

profit

Answer 15

Down sizing of forms
Firms shutdown or exit
Increase Price, Increase Profit

Question 16

Square P * Q

Answer 16

Profit

Question 17

Square ATC*Q

Answer 17

Total Cost

Question 18

Square AVC*Q

Answer 18

Total Variable Cost

Question 19

Increasing Cost Industry

Answer 19

Entries of new firms casuse input prices to rise

Upward sloping long-run industry supply curve

Question 20

Constant Cost Industry

Answer 20

Entries of new firms does not change input prices
After demand shift, Supply shifts back to orginal price/quantity level
E1 to E3 = long-run industry supply curve

Question 21

Decreasing Cost Industry

Answer 21

Entries of new firms casuse input prices to decrease

Downward sloping long-run industry supply curve