ECON 315 Exam 2 Ch 8 Content
What does the free entry and exit assumption imply for a perfectly competitive market?
-New firms will leave if they incur losses. -New firms will enter when profits exist. -In the long run, economic profits are zero.
Suppose a spinach farmer operates in perfect competition. At the market price of $3.00 per bunch, the farmer sells 125 bunches per day. If the farmer increases her price to $3.01, she will sell ______ bunches.
0
Define the competitive firm's demand.
Df = P = MR
Which of the following is NOT a source of monopoly power?
Free entry and exit
Given a revenue function, R = R(Q), what is the marginal revenue (MR)?
MR = dR / dQ
Suppose a market contains one supplier of a good that has no close, available substitutes. What type of market structure is this?
Monopoly
What do the key assumptions of a perfectly competitive market imply?
No one firm can influence market price.
Long-run properties of perfect competition include:
P = MC P = min AC
To maximize profits, a perfectly competitive firm should produce in the range of increasing marginal cost where P = MC and
P ≥ AVC
In perfect competition, profit equals
Revenues - Costs
What happens to the industry supply as firms exit a perfectly competitive industry in the long run?
Supply decreases
At the point where the cost curve C(Q) and the revenue line R(Q) are the farthest vertical distance apart, what is true of the slopes of these lines?
The slopes are equal.
When increasing the output of one product reduces the marginal cost of another product, it is called
cost complementarity.
When long-run average costs fall as output increases, we say that the firm experiences
economies of scale
When the total cost of producing two goods within the same firm is less than the cost of producing them in separate firms, ____ exist
economies of scope
A perfectly competitive firm maximizes profits at the level of output such that market price ___________ marginal cost (MC)
equals
A perfectly competitive firm maximizes profits at a point where P ___ MC over the range where MC is _________.
equals; increasing
True or false: A perfectly competitive firm's short-run supply curve is its marginal cost above the minimum point of the average cost (AC) curve.
false
The demand curve for a perfectly competitive firm is a ________- line at the market ________
horizontal, price
A monopolist faces a downward-sloping demand curve. As a result,
it can choose a price or a quantity, but not both.
When firms in a competitive industry sustain losses, they will ________ the industry in the long run.
leave
In a perfectly competitive firm, in the short run, a firm will shut down to minimize losses when price is ______ average variable cost.
less than
Economies of scale and scope, cost complementarity, and patents are all sources of _________ power.
monopoly
The market structure where a firm has a large degree of market power is called
monopoly
When price (P) exceeds minimum average variable cost (AVC), each unit of output sold generates _________ revenue than the cost per unit of the variable inputs.
more
In order to maximize profits in the short run, a manager must determine how much output should be produced, given
only variable inputs within his or her control.
An individual firm in perfect competition has a price elasticity that is ________.
perfectly elastic
For a perfectly competitive firm, marginal revenue is equal to the market
price
In a perfectly competitive market, the individual producer's demand curve is the market
price
On a graph, profits are given by the vertical distance between the cost function and the
revenue line
A period of time during which at least one input is fixed is called the
short
If P is less than AVC, the firm _____.
should shut down is sustaining a loss
The price an individual producer in a perfectly competitive market faces is determined by:
the market supply and market demand
The demand curve faced by a monopolist is
the same as the market demand curve.
In perfect competition, profits are maximized at a level of output such that
the vertical distance between the revenue line and the cost curve is greatest.
In the long run, profits in a perfectly competitive industry are ________.
zero
A perfectly competitive firm's short-run supply curve is its marginal cost above the minimum point of the _______ curve.
average variable cost (AVC)