Competitive Firms and Markets

Question 1

In perfect competition a competitive firms is…

Answer 1

a price taker, and as such, it faces a horizontal demand curve.

Question 2

Profit Maximization

Answer 2

To maximize profit, any firm must make two decisions: how much to produce and whether to produce at all.

Question 3

Competition in the Short Run

Answer 3

Variable costs determine a profit-maximizing, competitive firm’s supply curve and market supply curve, and with its market demand curve, the competitive equilibrium in the short run.

Question 4

Competition in the Long Run

Answer 4

Firm supply, market supply, and competitive equilibrium are different in the long run than in the short run because firms can vary inputs that were fixed in the short run.

Question 5

Market Structure

Answer 5

The number of firms in the market, the ease with which firms can enter and leave the market, and the ability of firms to differentiate their products from those of their rivals

Question 6

Residual Demand Curve

Answer 6

the market demand that is not met by other sellers at any given price.

Question 7

A firm’s profit is …

Answer 7

the difference between a firm’s revenues, R, and its cost, C.

Question 8

Economic Profit

Answer 8

Revenue minus opportunity cost

Question 9

Marginal Profit

Answer 9

The change in profit a firm gets from selling one more unit of output

Question 10

Marginal Revenue (MR)

Answer 10

The change in revenue a firm gets from selling one more unit of output

Question 11

Residual Supply Curve

Answer 11

the quantity that the market supplies that is not consumed by other demanders at any given price.