EC201 chapter 12

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What is the relationship between a perfectly competitive​ firm's marginal cost curve and its supply​ curve?

A​ firm's marginal cost curve is equal to its supply curve for prices above average variable cost.

A buyer or seller that is unable to affect the market price is called

price taker

Why do single firms in perfectly competitive markets face horizontal demand​ curves?

With many firms selling an identical​ product, single firms have no effect on market price.

What is a price​ taker?

a firm that is unable to affect the market price.

In the short​ run, a​ firm's shutdown point is the minimum point on the

average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve.

It is possible for profits to increase even if revenue decreases if

costs decrease more than revenue decreases.

In a perfectly competitive​ market, P​ = MR​ = AR because

firms can sell as much output as they want at the market price.

What is meant by allocative​ efficiency?

is produced up to the point where price equals marginal cost.

Despite the fact that few firms sell identical products in markets where there are no barriers to​ entry, economists believe that the model of perfect competition is important because

it is a benchmark—a market with the maximum possible competition—that economists use to evaluate actual markets that are not perfectly competitive.

When are firms likely to be price​ takers?

it represents a small fraction of the total market

What are the three conditions for a market to be perfectly​ competitive?

many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market.

In the long​ run, perfect competition

results in allocative efficiency because firms produce where price equals marginal cost.

What determines entry and exit of firms in a perfectly competitive industry in the long​ run? In a perfectly competitive industry in the long​ run,

new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses.

If the market for beer were perfectly​ competitive, the location of breweries would

not matter to consumers since the product would be homogeneous.

Perfectly competitive firms should produce the quantity where

the difference between total revenue and total cost is as large as possible.

Which of the following best represents profit per unit of​ output?

the distance between the points

Which of the following best represents total​ profit?

the shaded rectangle

Why are firms willing to accept losses in the short run but not in the long​ run?

there are fixed costs in the short run but not in the long run.

Suppose the market for cotton is perfectly competitive and that input prices increase as the industry expands. Characterize the​ industry's long-run supply curve. The cotton​ industry's long-run supply curve will be

upward sloping because the​ long-run average cost of production will be increasing

What is meant by productive​ efficiency?

when a good or service is produced at lowest possible cost.


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