Chapter 8 Microeconomics OpenStax

In the [a], if profits are not possible, the perfectly competitive firm will seek out the quantity of output where [b].

Short run, losses are lowest

Under perfect competition, any profit-maximizing producer faces a market price equal to its

marginal costs

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is:

preparing to exit operations.

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

The term ______________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

If a firm's revenues do not cover its average variable costs, then that firm has reached its ______________________ point.

shutdown

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce

Why are some producers forced to sell their products at the prevailing market price?

high degree of similarity to competitor's products

Perfect Competition

1. Many firms compete for consumer purchases 2. The products of each firm are identical 3. Low entry/exit barriers 4. Price takers - Firms only choose HOW MUCH to produce

Profit Maximization Rule

For all firms, no matter the competitive market structure, a firm will maximize profit for a given level of quantity where Marginal Revenue = Marginal cost (MR = MC)

It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00,

could likely result in a notable loss of sales to competitors

_________________________ refers to the additional revenue gained from selling one more unit.

marginal revenue

Profit

the difference between total revenue and total cost