ECO100: Competitive Markets

Company X has sold 1,221,981 song downloads of a popular music group for $0.99 a song. What will marginal revenue be for the next song?

$0.99

What is the break-even quantity for a piece of software that cost $500,000 to develop and will sell for $5 per download?

$100 000

Company Z invested $200,000 in software development and now sells the product for $10 a CD. Assuming the cost to create and package the CDs is $2 each, what is the break-even point in dollars for this product?

$250 000; $200 000/($10-$2) = 25 000 units; $200 000 + ($2 x 25 000 units) = $200 000 + $50 000

If the average total cost curve is above the demand curve, then this firm is:

having economic losses

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

price taker

Company Z invested $200,000 in software development and now sells the product for $10 a CD. Assuming the cost to create and package the CDs is $2 each, what is the break-even point in units for this product?

25 000 units; $200 000/($10-$2)

According to the data in the table, how many shirts would the firm produce when the price is $4?

Fixed Cost ($17) - Variable Cost ($13) = $4 at 4 units (loss b/c revenue is $16)

Which of the following is a characteristic of a perfectly competitive market?

Large number of buyers and sellers; undifferentiated products; no transaction costs; no barriers to entry and exit; perfect information about the price of a good

Which of the following best describes the additional revenue associated with selling an additional unit of output?

Marginal revenue

In perfect competition, the marginal revenue is the same as:

Price

What is zero economic profit?

Price is equal to ATC

What is MC?

The price at the Q

When do you shut down?

Where AVC = MC

Where is profit maximized?

Where MR=MC

A firm in perfect competition earns profit if:

price is greater than average total cost

In perfect competition, when a firm is making positive economic profit in the short run, then new firms enter the market causing the market supply curve to __________ and the market price to __________.

shift right; decrease

What is average revenue?

total revenue/the quantity sold

In the short run, the firm should:

operate if price > average variable cost.