Economics Module 7 Flashcards by Isabel Thoppil

A single firm in a perfectly competitive market is a _________.

Price-taker

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Which of the following is a characteristic of perfect competition?

Easy entry for firms

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Why can’t a single firm in a perfectly competitive industry influence the market price?

Its production level is too small to affect the market

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Consider the market structure of perfect competition. What does the lack of entry barriers indicate?

There are no significant obstacles preventing firms from entering and leaving the industry

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In perfect competition, the demand curve for an individual’s firm product is _________.

Perfectly elastic

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Consider a perfectly competitive firm. When the market price is greater than both the firm’s marginal cost and average variable cost, the firm ________.

Should increase its level of output

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In the short run, how will an increase in fixed costs affect the output of a typical firm in a competitive market?

No change in output

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In the short run, how will an increase in demand affect the output of a typical firm in a competitive market?

An increase in output

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In the case of an increase in fixed costs, what will happen to the economic profits of the typical competitive firm? Economic profits will ________.

Decrease

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In the case of an increase in demand, what will happen to the economic profits of the typical competitive firm? Economic profits will ________.

Increase

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Accounting profits at a firm’s economic profit break-even point are ________.

Positive

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What are economic profits at a firm’s break-even point?

Zero

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In the short run, how will a decrease in variable costs affect the output of a typical firm in a competitive market?

An increase in output

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The addition of a single firm in a competitive market will cause the market ______________ to ______________.

Supply; increase

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Assume that competitive firms in a competitive market are in long-run equilibrium. In the short run, what will be the effects of an increase in fixed costs on the output of a typical firm in a competitive market?

No change in output

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Assume that competitive firms in a competitive market are in long-run equilibrium. What will happen in the long run if fixed costs increase? Firms will ______________ because economic profits have ______________.

Exit; decreased

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Assume that competitive firms in a competitive market are in long-run equilibrium. Assume a constant cost industry. In the short-run, an increase in demand will cause firm output to ______________ and the market price to ______________.

Increase; increase

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Assume that competitive firms in a competitive market are in long-run equilibrium. What will happen in the long run in that same constant cost industry? Prices will ______________ and the market output will ______________ when compared to the levels prior to the increase in demand.

Remain the same; have increased

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Assume that competitive firms in a competitive market are in long-run equilibrium. In the short run, what will be the effects of an increase in variable costs on the output of a typical firm in a competitive market?

A decrease in output

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Assume that competitive firms in a competitive market are in long-run equilibrium. What will happen in the LONG RUN as a result of the increase in variable costs in the previous question? Firms will ______________ because profits have ______________.

Exit; decreased

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Which of the following is NOT true regarding perfectly competitive markets?

It is difficult or impossible for a firm to enter and compete in the market

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Regarding perfect competition, what does it mean when the goods sold by the firms in a market are homogeneous?

The good sold by one firm is a perfect substitute of the good sold by another firm in the same market.

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In a perfectly competitive market, a single firm that sets its price a small amount above the market price will do which of the following?

Not sell any units at all

Why are perfectly competitive markets considered economically efficient?

The opportunity cost of society for making the good is equal to society’s value of the good.

Given all the characteristics of perfect competition, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?

Price

The clothing and attire retail market has seen an increased number of firms entering the industry. Thus, there is a lot of competition in markets for many types of clothing. What is the result of this high amount of competition?

Individual buyers and sellers cannot affect the market price.

For a firm in a perfectly competitive industry, the demand curve for its own product is _________.

horizontal at the market price

In a perfectly competitive industry, the industry demand curve is __________.

Downward sloping

Which of the following is not true regarding a firm in perfect competition?

A single firm can influence the demand for its product by advertising.

A perfectly competitive firm is experiencing the following short-run price and costs: P = $0.80, ATC = $2.20, AVC = $1.30, MC = $0.80. What short-run decision should this firm make?

Shut down production

For a firm in a perfectly competitive market, average revenue equals ________.

The market price

Which of the following is true for a single firm in a perfectly competitive industry?

P = MR

In the theory of firm behavior, we assume that firms attempt to maximize _________.

Total economic profits

A perfectly competitive firm, that chooses to produce, will maximize profits at the output level where which of the following is true?

Marginal cost is equal to marginal revenue

If a perfectly competitive industry is in long-run equilibrium, then which of the following is true?

Price equals minimum average cost.

Consider the effect on costs of an increase in wages in an economy. What is the increase likely to do?

Increase short-run average costs and long-run average costs.

Assume the price of coffee increases. If the market for tea is perfectly competitive and a constant cost industry, what will happen to the tea market in the long run? Output will ______________; prices will ______________; and economic profits will ______________ Indicate whether increase, decrease, cannot tell, or no change as before the price shift is correct for each blank space.

Increase; not change; not change

If all firms in a perfectly competitive industry are required to adopt antipollution devices, the long-run results would be that the firms would be earning ______________ and the industry will be producing ______________ amounts of output.

Zero economic profits; smaller

An effective price ceiling in a competitive industry will mean that which of the following is true?

Marginal cost equal to marginal revenue

In the short run, perfectly competitive firms will produce where _____________?

Price equals marginal cost

Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? An increase in fixed costs will ______________ the equilibrium price and ______________ equilibrium quantity in the market.

not change; not change

Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? An increase in fixed costs will ______________ the equilibrium price and ______________ the market equilibrium quantity.

Increase; decrease

Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? A decrease in variable costs in the short run will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.

Decrease; increase

Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? A decrease in variable costs in the long run will cause the equilibrium price to ______________ and the equilibrium quantity in the market to ______________.

Decrease; Increase by more than in short-run

Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.

Increase; increase

Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.

Not change, increase

Assume an increasing-cost industry in a competitive market. What are the long term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.

Increase; increase

Assume a decreasing-cost industry in a competitive market. What are the long term effects of the following change? An increase in the demand for the good will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.

Decrease, increase

Given the information above, should they stay open during the winter months this year?

Stay open during the winter, even though they are making a loss.

When making the decision about whether to renew their lease for the next year, and assuming that they anticipate the same level of revenue and costs in the future, what should the firm do?

The parlor will renew their lease because overall they make a positive profit over the year

Which of the following is true?

Firms sometimes continue to operate even if they are experiencing losses.

Which of the following would most likely be considered a market with free entry?

Selling homemade crafts

Which of the following is true about long-run equilibrium in a competitive market?

All firms are content to stay in or out of the market.

In perfect competition, an increasing cost industry results in a(n) _________ long-run industry supply curve.

Upward sloping

Technical efficiency in a market means that output is produced _______.

At the lowest average cost