Chp 14

Question 1

Many buyers/sellers, goods are identical, free entry and exit, no barriers to entry

Answer 1

Perfectly competitive markets

Question 2

True or False: The actiona of a single buyer/seller have a negligible impact on the marlet price of a good/service. No single firm is powerful enough to control price.

Answer 2

True

Question 3

Individuals who take the given market price are?

Answer 3

Price takers

Question 4

Total Revenue (Linear)

Answer 4

Price times Quantity sold (P x Q);

Question 5

Profit

Answer 5

Total Revenue minus Total Costs (TR - TC)

Question 6

True or False: Total Costs must be higher than Total Revenue, otherwise losses occur

Answer 6

True

Question 7

How much revenue a firm gains from each typical unit sold?

Answer 7

Average Revenue ( TR / Q )

Question 8

Marginal Revenue

Answer 8

The change in revenue from an additional unit sold

The change in Total Revenue / The change in Quantity

Question 9

True or False: Marginal Revenue equals Price in a perfectly competitive market ( MR = P )

Answer 9

True

Question 10

True or False: Price = Average Revenue = Marginal Revenue

Answer 10

True

Question 11

As long as Marginal Revenue is greater than Marginal Costs? ( MR > MC )

Answer 11

A firm should keep making that Quantity of product

Question 12

If Marginal Revenue is less than Marginal Cost ( MR < MC ),

Answer 12

A firm should produce less product

Question 13

When a firm maximizes profit, it sells Quantity at the point where

Answer 13

Marginal Revenue = Marginal Costs

Question 14

True or False: In a perfectly competitive market, a firm produces where Price = Marginal Revenue = Marginal Cost ( P = MR = MC )

Answer 14

True

Question 15

True or False: A firm’s supply curve is its Marginal Cost (MC) curve

Answer 15

True

Question 16

Where a firm temporarily stops producing because of marlet conditions

Answer 16

Shutdown

Question 17

Shutdown occurs where

Answer 17

Total Revenue < Total Variable Costs (TR < TVC) or Price < Average Variable Costs (P < AVC)

Question 18

Sunk costs

Answer 18

Costs that have already been spent and cannot be recovered

Question 19

Firm’s SR supply curve

Answer 19

The portion of the Marginal Cost (MC) curve that is above the minimum Average Variable Cost (AVC)

Question 20

Shutdown Price

Answer 20

Where Price equals minimum Average Variable Cost (P = AVC)

Question 21

Shutdown Price

Answer 21

P = AVC

Question 22

A competitive firm’s demand curve is perfectly (elastic/inelastic)

Answer 22

Elastic

Question 23

In a perfectly competitive market, for a firm;

Answer 23

Price equals Average Revenue equals Mariginal Revenue equals Demand

(P = AR = MR = D)

Question 24

When Price > Average Total Cost,

Answer 24

Positive economic profit

Question 25

When Price < Average Total Costs (P < ATC)

Answer 25

A firm starts making negative economic profit, or losses

Question 26

Zero economic profit, or normal economic profit

Answer 26

When Price equals Average Total Cost (P = ATC)

Question 27

Breakeven point

Answer 27

When a firm earns zero economic profit, or when Profit equals minimum Average Total Cost (P = ATC)

Question 28

A firm exits an industry when

Answer 28

P < Minimum ATC

Question 29

When will a firm enter an industry,

Answer 29

if P > minimum ATC

Question 30

When there is no entry or exit in an industry because P = min ATC

Answer 30

Long run (LR) equilibrium

Question 31

In LR equilibrium, maximize profits (P = SR MC), have no entry or exits (P = min SR ATC), long run average costs are minimal (P = min LRAC). Are firms producing at an efficient or inefficient level?

Answer 31

Efficient

Question 32

The portion of the Marginal Cost curve that above the minimum Average Total Cost

Answer 32

A firm's LR supply curve

Question 33

Sum of the quantities supplied by individual firms in the market

Answer 33

Market supply

Question 34

True or False: When demand increases, price increases and firms enter the market to take advantage of profits. This shifts demand curve up by the price increase and to the right by the new quantity being made

Answer 34

True

Question 35

(P - ATC) Q = ?

Answer 35

Profit

Question 36

True or False: In equilibrium, Qd = Qs

Answer 36

True

Question 37

Is an industry in LR equilibrium if firms are making positive economic prices?

Answer 37

No, Price must be brought down to the minimum Average Total Cost for entry to stop and equilibrium to be achieved