econ chapter 13

Gut Bombs sandwich shop usually sells 3,500 sandwiches per month for $10 each. Their marginal revenue per sandwich is

$10

Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of it 10 workers $2,500 a month and spends $5000 on food. There are no other production costs. Gut Bombs sandwich shop usually sells 4,000 sandwiches per month for $10 each. Their profit is $

5000

A firm would want to enter the market if it sees it could produce at a level of

ATC that is below the market price.

_____ revenue is total revenue divided by the quantity sold.

Average

In a perfectly competitive market, which of the following participants have full information?

Both buyers and sellers

The process of market entry and exit leads us to several conclusions:

Economic profits are zero. Supply is perfectly elastic. Firms operate at an efficient scale.

A firm should keep producing as long as the marginal cost is greater than the marginal revenue.

False

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

Firms have full information.

____ costs neither affect, nor are affected by, the quantity the firm produces in the short run.

Fixed

Which of the following are examples of standardized goods?

Gold Oil Copper

Firms will continue entering a market, causing the price to fall until

P = ATC where economic profits are zero.

When losses occur, firms will continue exiting the market, causing the price to rise until

P = ATC where economic profits are zero.

Average revenue is

PxQ/Q

Which of the following are true in the long run as firms enter the market?

The new market equilibrium price is lower. The market supply curve shifts to the right.

Which of the following is NOT one of the four defining characteristics of a competitive market?

There are only a few sellers.

Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of it 10 workers $2,500 a month and spends $5,000 on food. There are no other production costs. Gut Bombs sandwich shop usually sells 3,500 sandwiches per month for $10 each.

They have a profit of zero.

A market in which fully informed, price-taking buyers and sellers easily trade a standardized good or service is called

a perfectly competitive market

The key difference between supply in the short run and supply in the long run is that in the long run we assume that firms

are able to enter and exit the market.

In perfectly competitive markets,

buyers face low (or zero) transaction costs. sellers face low (or zero) transaction costs.

When goods are not standardized, producers will be able to

charge different prices.

Most sellers and buyers in most markets are not in the happy position of being able to set their own price. Instead, most face some degree of

competition

Fixed costs are irrelevant in the decision about whether to shut down production in the short run because fixed costs

do not affect, and are not affected by, the quantity the firm produces.

In the long run,

economics profits fall to zero

When there are economic profits in a market, _____.

firms will enter the market to take advantage of the profit-making opportunity

When there are economics losses in a market,

firms will leave the market

The difference between a firm's variable and total costs is its _____ costs.

fixed

The firm has to pay its _____ costs regardless of how much it produces, and even if it produces nothing at all.

fixed

A sunk cost is a cost that

has already been incurred and cannot be recovered.

A perfectly competitive market can be defined as,

having price-taking buyers and sellers trading standardized goods.

In a perfectly competitive market, firms earn zero economic profits

in the long run

In a perfectly competitive market in the short run, an increase in demand causes equilibrium price to

increase and the equilibrium quantity to increase.

Over time, average total cost may change because

innovative firms use new technologies that enable them to produce goods at lower cost.

When goods are standardized, they are

interchangeable

In a perfectly competitive market, firms earn zero economic profits and operate at an efficient scale in the ________ run.

long

The key difference between supply in the short run and supply in the long run, is that we assume that firms are able to enter and exit the market only in the _____ run.

long

If the market price drops below the minimum AVC, the firm would cease production in the short run because the

loss will be greater than the fixed costs.

Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of it 10 workers $2,500 a month and spends $5000 on food. There are no other production costs. Gut Bombs sandwich shop usually sells 3,000 sandwiches per month for $10 each. Their (profit/loss) ___________ is $___________

loss; $5000

More firms will enter a market if the existing firms are

making a profit.

The ability to noticeably affect market prices implies

market power.

A perfectly competitive firm will make profits as long as the _____.

market price is above the firm's average total cost

A firm should keep producing for as long as marginal revenue is __________ than marginal cost.

more

The short run market supply curve is upward sloping because each firm supplies

more as the price rises.

The average total cost reflects economic costs which include explicit costs and _____ costs.

opportunity

Producers are able to sell as much as they want without affecting the market price in a

perfectly competitive market.

Because buyers and sellers in a perfectly competitive are so small relative to the total size of the market, they must accept the prevailing market

price

A firm could be making more money by pursuing other opportunities if

price falls below ATC.

Total revenue is

price × quantity.

The first essential characteristic of a perfectly competitive market is this: buyers and sellers have so much competition, they have no ability at all to set their own

prices

The only choice that a perfectly competitive firm can make to affect its profits, is to decide the

quantity to produce.

In a perfectly competitive market, producers are able to

sell as much as they want without affecting the market price.

Many natural resources can be considered _____ goods.

standardized

In a perfectly competitive market in the long run, after all adjustments have occurred, an increase in demand causes equilibrium price to

stay the same and the equilibrium quantity to increase.

The short-run market supply curve is the _____.

sum of all firms' MC curves above the minimum AVC.

A cost that has already been incurred and cannot be refunded or recovered is a _____ cost.

sunk

Over time, as new innovative firms enter the market, entry will result in a decrease in both the MC and the ATC curves, increasing the quantity ______, as well as profits, and driving the market price _____.

supplied; down

In a perfectly competitive market, _____.

the market price is the same thing as the firm's marginal revenue and average revenue

As more firms enter the market,

the short-run market supply curve shifts right

As new firms enter a market, _____.

the short-run market supply increases and the short-run market demand stays constant

As more firms enter the market,

the total quantity offered for sale at any given price increases.

When buyers and sellers know exactly what is being traded,

there are no information asymmetries. buyers and sellers have the same information.

The four defining characteristics of a competitive market are that

there are no transaction costs. goods are standardized. buyers and sellers can't bargain over prices. buyers and sellers have full information.

In a perfectly competitive market, _____.

there are so many buyers and sellers that no one buyer or seller can set their own price

In the short run, even if a perfectly competitive firm produces nothing,

they must pay the fixed costs which do not change when quantity falls to zero.

A perfectly competitive firm can only decide the quantity of output to produce because they are

too small to influence the market price.

Price × quantity is equal to

total revenue

Average revenue is

total revenue / quantity sold

Average revenue is

total revenue divided by the quantity sold

The decision about whether to shut down production in the short run depends entirely on the _____ costs of production.

variable

Producers are able to charge different prices

when goods are differentiated.

When firms experience short-run losses, firms will continue exiting the market causing the price to rise until economic losses are reduced to

zero