Chapter 23 Exam 3 prep

Profits and losses are TRUE signals because they

convey information about where to place resources and reward people who act on the information.

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $16. The firm should

increase output.

An industry in which an increase in industry output is accompanied by an increase in long-run per-unit costs is a(n)

increasing-cost industry.

Under perfect competition, the firm must decide

the best rate of output it should produce.

If a firm is a perfect competitor, then

the demand curve for its product is perfectly elastic.

A perfectly competitive industry's market or "going" price is established by

the forces of supply and demand.

All of the following are true regarding perfectly competitive price determination EXCEPT

the individual firm is known as a market price maker.

Which of the following is closest to a perfectly competitive market?

the market for corn

Competitive pricing is efficient because

the price that consumers pay reflects the opportunity cost to society of producing the good.

Which of the following is NOT a characteristic of a perfectly competitive industry?

Economic profits must be positive in the short run.

When a firm is earning zero economic profits

P = ATC.

Suppose that at the current level of output, price = $12, MC = $4, AVC = $7, and ATC = $11. Which of the following is TRUE?

The firm should increase output.

Which of the following is NOT correct concerning perfectly competitive firms in the long run?

The opportunity cost of capital is zero.

A farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

a price taker and cannot affect the market price of wheat.

Each firm in a perfectly competitive industry is

a price taker.

The short-run industry supply curve is found by

adding up the quantities supplied at each price by each firm in the industry

In an increasing-cost industry, an increase in output will lead to

an increase in long-run per-unit costs.

Under what condition are profits maximized?

at the rate of output at which marginal revenue equals marginal cost

If marginal revenue is less than marginal cost, the firm should

decrease its rate of output.

What is the shape of the long-run supply curve in a decreasing-cost industry?

downward sloping

The motive that drives firms to enter or exit an industry is

economic profit.

For the perfectly competitive firm, price

equals average revenue and marginal revenue.

In the model of perfect competition, the market demand curve is found by

horizontally summing the demand curves of individual consumers.

The marginal revenue curve of a perfectly competitive firm

is also the demand curve faced by the firm

In a perfectly competitive industry, the industry demand curve

is downward sloping

The short-run break-even price

is the price at which a firm's total revenues equal total costs.

Perfect competition is characterized by

many buyers and sellers.

The change in total revenues resulting from a change in output of one unit is

marginal revenue.

The total revenue of a perfectly competitive firm is calculated by

multiplying price by quantity.

A market structure in which the decisions of individual buyers and sellers have no effect on market price is

perfect competition.

In a perfectly competitive market, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from?

price

Suppose a perfectly competitive firm can produce 20,000 bushels of corn a year at an output at which marginal cost equals marginal revenue. The market price of corn per bushel is $2.00. The firm's total costs per year are $50,000 and fixed costs per year are $25,000. In the short run, this firm should

produce 20,000 bushels of corn because, although they are losing money, they are losing less than if they shut down.

All of the following are characteristics of perfect competition EXCEPT

product differentiation.

If a perfect competitor faces P = ATC in the long run, the firm will

remain in the industry.

When price is greater than both marginal cost and average variable cost, the perfectly competitive firm

should increase its level of output.

For a perfectly competitive firm, any price below its minimum AVC is a

shutdown price.

The demand curve faced by a perfectly competitive industry

slopes downward.

A firm that shuts down in the short run experiences losses equal to its

total fixed costs.