Chapter 14 Econ 201

for a competitive firm, marginal revenue is

= to the price of the good sold

in the long run, some firms will exit the market if the price of the good offered for sale is less than

ATC

sunk cost

a cost to which one is already committed and is not recoverable

T/F- a profit maximizes profit when it produces output up to the point where marginal cost = marginal revenue

T

T/F- for a competitive firm, marginal revenue = price of the good it sells

T

T/F- if a competitive firm sells three times the amount of output, its total revenue also increases by a factor of 3

T

T/F- in the long run, if firms are identical and there is free entry and exit in the market, all firms in the market operate at their efficient scale.

T

T/F- in the long run, if the price firms receive for their output is below their ATC some firms will exit the market.

T

exit

a long-run decision to permanently cease production and leave the market

competitive market

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

shut down

a short-run decision to temporarily cease production during a specific period of time due to current market decision

Price takers

buyers and sellers in a competitive market that must accept the price that the market determines

marginal revenue

change in total revenue from an additional unit sold

if a competitive firm doubles its output, its total revenue

doubles

if a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

increased production

if a profit maximizing, competitive firm is producing a qty at which marginal cost is between AVC and ATC, it will

keep producing in the short run but exit the market in the long run

a competitive firm maximizes profit by choosing the qty in which

marginal cost= price

the competitive firm maximizes profit when it produces output up to the point where

marginal cost=marginal revenue

a competitive firms short run supply curve is its what cost curve about its what cost curve

marginal, average variable

Do firms generate small but positive economic profits in the long run?

no

if an input necessary for production is in limited supply so that an expansion of the industry raises costs for all existing firms in the market, then the long run market supply curve could be

perfectly elastic

if all firms in a market have identical cost structures and if inputs used in the production of the good in that market are readily available, then the long run market supply curve for that good should be

perfectly inelasltic

a perfectly competitive firm

takes its price as given by market conditions

average revenue

total revenue / qty sold

in a long run equilibrium in a competitive market, firms are operating at

zero economic profit their efficient scale the intersection of marginal cost and marginal revenue the minimum of ATC curves

T/F- if marginal cost exceeds marginal revenue at a firms current level of output, the firm can increase profit if it increases its level of output

F; the firm increases profits if it reduces output

T/F- in the short run, if the price a firm receives for a good is above its average variable costs but below its ATC, the firm will temporarily shut down

F; the firm will continue to operate in the short run as long as price exceeds average variable costs

T/F- the short-run market supply curve is more elastic than the long-run market supply curve

F; the long-run market supply curve is more elastic than the short-run market supply curve

if the long run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause

an increase in the number of firms in the market but no increase in the price of the good.