Chapter 8 Key Concepts

Question 1

Characteristics of perfect competition:

Answer 1

Price takers, large number of firms, homogeneous product, easy entry and exit, good information for both buyers and sellers

Question 2

Examples of perfect competition

Answer 2

Agriculture, stock markets

Question 3

Demand to purely competitive firm

Answer 3

Perfectly elastic

Question 4

Price of output multiplied by quantity sold

Answer 4

Total revenue

Question 5

Total cost subtracted from total revenue

Answer 5

Profit

Question 6

P above ATC and Q*

Answer 6

Perfect competition profit

Question 7

P = ATC at Q

Answer 7

Perfect competition breaken

Question 8

P below ATC at Q* but above AVC

Answer 8

Perfect competition loss

Question 9

P below AVC at Q*

Answer 9

Perfect competition shutdown

Question 10

The change in total revenue due to a change in quantity sold

Answer 10

Marginal Revenue

Question 11

Operate where marginal revenue is equal to marginal cost

Answer 11

Profit maximization rule

Question 12

Immediately shut down if price drops below average variable cost

Answer 12

Shutdown rule

Question 13

Long run supply has negative slope

Answer 13

Decreasing cost industry

Question 14

Long run supply flat

Answer 14

Constant Cost industry

Question 15

Long run supply has positive slope

Answer 15

Increasing cost industry