ECON102 Chapter 8

Identify a perfectly competitive firm from these examples. • Johnson and Johnson • General Motors • A dairy farm • A private hospital partly funded by the government

A dairy farm The output of a dairy farm is almost identical to that of other farms. The price of its product is also likely to be equal to the market price. Hence, a dairy farm is most likely to be perfectly competitive.

In the short run, a perfectly competitive firm will shut down if: a. price is less than average cost. b. marginal revenue is equal to marginal cost. c. total revenue is less than total variable cost. d. total revenue is equal to total cost.

c. total revenue is less than total variable cost.

In _____, a firm is so small relative to the size of the market that the firm's decision about how much to produce has no effect on the market price. a.monopoly b.oligopoly c.perfect competition d.monopolistic competition

c.perfect competition

Allocative efficiency occurs when each firm produces the output that: • maximizes the total revenue. • has a highly elastic demand. • consumers value the most. • requires the least amount of resources.

consumers value the most.

The demand curve facing an individual firm in a perfectly competitive market is: • perfectly price elastic. • perfectly price inelastic. • unit elastic. • slightly inelastic.

perfectly price elastic. The demand curve facing an individual firm in a perfectly competitive industry is a horizontal line drawn at the market price.

An important feature of perfect competition is: • the presence of a small number of buyers and sellers. • the presence of a standardized product. • the immobility of resources. • imperfect information transfer between buyers and sellers.

the presence of a standardized product.

The short-run industry supply curve is the: a. horizontal sum of all the firms' short-run supply curves. b. vertical sum of all the firms' short-run supply curves. c. horizontal sum of all the firms' variable cost curves. d. vertical sum of all the firms' variable cost curves.

a. horizontal sum of all the firms' short-run supply curves.

A perfectly competitive firm guarantees _____ in the long run. • decreasing returns to scale • economic profit • allocative and productive efficiency • increasing marginal returns

allocative and productive efficiency

Which of the following industry types features a horizontal long-run supply curve? a. An increasing-cost industry b. A constant-cost industry c. A decreasing-cost industry d. A monopolistically competitive industry

b. A constant-cost industry

_____ is the sunk cost for a perfectly competitive firm in the short run, whether the firm produces or shuts down. a. Variable cost b. Fixed cost c. Marginal cost d. Total cost

b. Fixed cost

Profit is maximized at the rate of output where _____. a. marginal revenue exceeds marginal cost by the greatest amount b. marginal revenue equals marginal cost c. average revenue exceeds average cost by the greatest amount d. average revenue equals average cost

b. marginal revenue equals marginal cost Profit is maximized at the rate of output where the additional revenue from selling one unit of a good equals the additional cost of producing one more unit of the good.

The total revenue earned by a firm can be calculated by: a. multiplying the output sold by the market price of a product. b. adding the output sold and the market price of a product. c. adding the total output produced by the firm and the market price of a product. d. multiplying the total output produced by the firm by the market price of a product.

d. multiplying the total output produced by the firm by the market price of a product.

The long-run industry supply curve for a constant-cost industry: • is an upward-sloping linear curve. • is a downward-sloping linear curve. • is a horizontal line parallel to the output axis. • is a vertical line parallel to the price axis.

is a horizontal line parallel to the output axis.

The long-run equilibrium for a perfectly competitive firm ensures that: • Average Revenue = Average Cost = Average Fixed Cost. • Marginal Revenue = Marginal Cost = Average Total Cost. • Marginal Revenue > Marginal Cost > Average Total Cost. • Marginal Cost = Average Total Cost = Average Fixed Cost.

Marginal Revenue = Marginal Cost = Average Total Cost. In the long run, a firm earns normal profit. Hence marginal cost, marginal revenue, and long-run average cost are all equal. There is no reason for new firms to enter the market or for existing firms to leave.

Which of the following conditions is common in a perfectly competitive market? • Government licenses • Patent rights • Uniform product price • Imperfect information

Uniform product price An individual buyer or seller has no control over the price in a perfectly competitive market. Price is determined by market demand and supply. Once the market establishes the price, any firm is free to supply whatever quantity maximizes its profit.

A corn producer in Texas faces a horizontal demand curve because: • each firm in the corn market has a small share in the market and is a price taker. • each firm in the corn market is unaware of the price charged by the other firms in the market. • each firm in the corn market produces a good for which there are no complements. • each firm in the corn market produces a good for which there are no substitutes.

each firm in the corn market has a small share in the market and is a price taker.

In a perfectly competitive market, the portion of a firm's marginal cost curve that intersects and rises above the lowest point on its average variable cost curve represents: • the short-run supply curve of the firm. • the demand curve faced by the firm in the long run. • the long-run supply curve of the firm. • the demand curve faced by the firm in the short run.

the short-run supply curve of the firm.

For which of the following industries is the long-run industry supply curve perfectly elastic? • Decreasing-cost, perfectly competitive industry • Decreasing-cost, monopolistically competitive industry • Constant-cost, perfectly competitive industry • Increasing-cost, monopolistically competitive industry

Constant-cost, perfectly competitive industry The long-run supply curve for a perfectly competitive constant cost industry is a horizontal straight line parallel to the output axis.

Suppose the firms in a perfectly competitive industry were earning normal profit before an economic downturn decreased the market demand for the product. Which of the following will be a likely short-run impact of this economic change? • The marginal cost of each firm in the industry will decline. • Each firm in the industry will start earning economic profit. • Each firm will incur economic loss. • The average revenue of each firm will increase.

Each firm will incur economic loss. A fall in market demand in a perfectly competitive market exerts a downward pressure on the market price. Since each firm in a perfectly competitive market charges the market price, the average revenue of the individual firms will also decline when market demand declines. When the firms were earning normal profit, MC = MR = AR = AC. As the new price level is below the average total cost of production, each firm will incur an economic loss.

Which of the following is true of the long run in a perfectly competitive market? • The marginal revenue exceeds the average revenue at the profit-maximizing output. • Firms earn economic profit. • Firms earn a normal profit. • The marginal cost exceeds the average cost at the profit-maximizing output.

Firms earn a normal profit. In the long run, perfectly competitive firms earn normal profit. Hence marginal cost, marginal revenue, and long-run average cost are all equal.

Suppose a business analyst observes that a perfectly competitive firm's marginal revenue, marginal cost, and average revenue are all equal to the price of its product when output is 5,000 units. If the rent paid by the firm for factory space increases, which of the following is likely to happen? • The profit-maximizing output and the profit earnings will both decrease. • The profit-maximizing output will increase, but the profit earnings will decrease. • The profit-maximizing output will remain at 5,000 units, but the profit earnings will decrease. • The profit-maximizing output will increase, but the profit earnings will remain the same.

The profit-maximizing output will remain at 5,000 units, but the profit earnings will decrease. A firm produces rather than shuts down if total revenue exceeds the variable cost of production. The profit-maximizing output remains fixed at 5,000 units even when the fixed cost increases, as long as the variable costs of production are covered. However, the total profit earned by the firm decreases.

In a perfectly competitive market, as a result of a decrease in demand, _____ in the long run. a. profits become positive b. some firms are forced out of business c. firms enter the market d. the market supply increases

b. some firms are forced out of business

The total revenue of a perfectly competitive firm is $3,000, its variable cost of production is $2,800, and its fixed cost is $600. Which of the following decisions will be taken by the owner of the firm in the short run? • The firm will continue to operate in the short run since its total cost exceeds its total revenue. • The firm will shut down. • The firm will raise its price in the short run. • The firm will continue to operate in the short run since its total revenue exceeds its total variable cost.

The firm will continue to operate in the short run since its total revenue exceeds its total variable cost.

If resources are allocated in such a way that there is no other way to increase the total utility of consumers, _____. a. consumer surplus is maximized b. a market is said to be allocatively efficient c. a market is said to be productively efficient d. producer surplus is maximized.

b. a market is said to be allocatively efficient Allocative efficiency implies that resources have been allocated in such a way that there is no other way to increase the total utility or total benefit consumers reap from production.

The long-run supply curve of firms in an increasing cost industry is: a. horizontal. b. upward sloping. c. vertical. d. downward sloping.

b. upward sloping.

Allocative efficiency occurs when firms produce the output corresponding to the point: a. where price equals minimum long-run average cost. b. where price equals marginal cost. c. where consumer surplus is zero and producer surplus is positive. d. where marginal benefit equals marginal cost.

d. where marginal benefit equals marginal cost.

When the market price of a good sold in a perfectly competitive market decreases, _____. • the marginal cost curve shifts to the right • the average revenue curve shifts upward • the average revenue curve shifts downward • the marginal cost curve shifts to the left

the average revenue curve shifts downward In each market, the average revenue earned by a firm is equal to the price of the good that the firm sells. In perfect competition, price is constant, so average revenue is a horizontal linear curve parallel to the output axis at the given price.

Identify a key feature of a perfectly competitive market in the long run. • Limited access to information • Easy entry and exit of firms in the market • Presence of a small number of buyers • Production differentiation between firms

Easy entry and exit of firms in the market When perfectly competitive firms earn economic profits in the short run, new firms enter the industry, the existing firms expand their scale of operation, and all firms earn normal profits.

Which of the following is true of the total revenue curve faced by a perfectly competitive firm? • It is a linear curve showing a positive relationship between price and output. • It is a downward-sloping straight line with a constant slope. • It is a straight line emanating from the origin with a constant slope. • It is a negatively sloped linear curve showing an inverse relation between price and output.

It is a straight line emanating from the origin with a constant slope. The total revenue curve for a perfectly competitive firm is a straight line with a constant slope. The slope of the total revenue curve is equal to the market price.

At the end of a particular quarter, a perfectly competitive firm observes that its marginal cost of production is $15, while its marginal revenue is $18. Further, the market price of its product exceeds the average variable cost of production by $2. Given this information, which of the following decisions should be taken by the firm to maximize profit? • The firm should invest heavily in advertising and promotion. • The firm should lower the market price of its product. • The firm should temporarily stall its production. • The firm should increase its total production.

• The firm should temporarily stall its production. At the current rate of output, MR > MC. Therefore, the firm should increase its output until the profit-maximizing condition MR = MC is achieved.

Which of these will be a possible impact of an increase in demand in a perfectly competitive, increasing-cost industry? • The equilibrium price will decrease, while the equilibrium output will remain constant. • The equilibrium price will remain unchanged, while the equilibrium output will fall. • The equilibrium price will decrease, while the equilibrium output will increase. • The equilibrium price as well as the equilibrium output will increase.

The equilibrium price as well as the equilibrium output will increase. The higher price that buyers are willing to pay because of an increase in demand induces existing firms to increase their quantities supplied as they move along their individual marginal cost curves. The market, as such, moves along the original market supply curve from one equilibrium point to a higher equilibrium point. An increase in demand, therefore, increases both the equilibrium price and the equilibrium output.

Which of the following will hold true in the short run if a perfectly competitive firm stalls production? • The firm will have to bear its variable cost. • The firm will have to bear its fixed cost. • The firm will not have to incur losses. • The firm will have to bear its marginal cost.

The firm will have to bear its fixed cost. A firm that shuts down in the short run must still pay its fixed cost. However, it might be able to cover its variable costs as well as some of its fixed costs if it continues to produce. Therefore, a firm continues to produce in the short run rather than shutting down if total revenue exceeds the variable cost of production.

Which of the following is true of the long-run equilibrium for firms and an industry in perfect competition? a. Firms produce output where price equals marginal cost, which also corresponds to the point where the marginal cost curve intersects the long-run average cost curve. b. Firms produce output where total revenue is maximized. c. Firms earn positive economic profits. d. Firms produce output where price equals average fixed cost, which also corresponds to the point where the marginal revenue curve intersects the marginal cost curve.

a. Firms produce output where price equals marginal cost, which also corresponds to the point where the marginal cost curve intersects the long-run average cost curve.

_____ efficiency occurs when a firm produces at the minimum point on its long-run average cost curve. a. Social b. Productive c. Allocative d. Economic

b. Productive

In a perfectly competitive market, a firm operating in the long run is forced by competition to adjust its scale of operation: a. until marginal cost is minimized. b. until average cost is minimized. c. to the point where marginal cost equals average cost. d. to the point where marginal cost equals the market price.

b. until average cost is minimized

A short-run feature of a firm under perfect competition is: • the ability to control prices. • the presence of a limited number of sellers. • limited entry and exit. • the presence of production externalities.

limited entry and exit. A firm in a perfectly competitive market cannot go out of business or produce something else in the short run. The short run is, by definition, a period too short to allow existing firms to leave the industry.

The average revenue of a firm is equal to: • the slope of its total revenue curve. • its average cost of production. • market price of its product. • the marginal revenue from the last unit of its output.

market price of its product. Average revenue equals total revenue divided by quantity of output. In all market structures, average revenue equals the market price.

The short-run industry supply curve in perfect competition is: • the horizontal summation of the upward-sloping short-run marginal cost curves of all the firms. • the vertical summation of all the firms' short-run average variable cost curves. • the horizontal summation of the average variable cost curves of all the firms. • the vertical summation of the downward-sloping short-run marginal cost curves of all the firms.

the horizontal summation of the upward-sloping short-run marginal cost curves of all the firms.

A perfectly competitive firm will be compelled to shut down its operation in the short run if, before the shutdown, at all positive output levels, _____. • the average fixed cost was more than the average revenue • the average total cost was less than the average variable cost • the average cost was less than the short-run profit • the total variable cost was more than the total revenue

the total variable cost was more than the total revenue

The resource prices in a constant cost industry remain stable when output expands because the firms in this industry: • experience diseconomies of scale. • use variable resources for production. • use a small portion of the available resources. • use resources that are available free of cost.

use a small portion of the available resources. A constant-cost industry uses such a small portion of the resources available that expanding industry output does not bid up resource prices.

If marginal revenue exceeds marginal cost, then a profit-maximizing perfectly competitive firm should: a. increase output. b. decrease output. c. leave output unchanged. d. increase price.

a. increase output. If marginal revenue exceeds marginal cost, an additional unit of output adds more to the total revenue than to the total cost. Therefore, the firm should increase output.

A perfectly competitive firm will choose to shut down if _____ at all rates of output. a. its average variable cost exceeds the price b. its total revenue is greater than the total variable cost c. its marginal cost exceeds marginal revenue d. its marginal revenue is equal to the average revenue and price

a. its average variable cost exceeds the price

Suppose the demand for the output produced by a perfectly competitive firm is zero for any price at or above $10. As price falls from $10, the quantity of output demanded increases. If the equilibrium price and output of this firm are $4 and 10,000 units, respectively, the value of the consumer surplus would be: • $10,000. • $5,000. • $40,000. • $30,000.

$30,000. For a given level of output, consumer surplus is the area below the demand curve and above the market clearing price. Consumer surplus = (½) × 10,000 × ($10 − $4) = 10,000 × 3 = 30,000.

Which of these is a characteristic of a constant-cost industry? • Each firm in the industry experiences economies of scale as the industry output increases. • Each firm's marginal cost exceeds the market price of the product. • Each firm experiences a higher average cost as the industry output increases. • Each firm's per-unit costs are independent of the number of firms in the industry.

Each firm's per-unit costs are independent of the number of firms in the industry. In a constant-cost industry each firm's long-run average cost curve remains unchanged when industry output changes. In this industry, each firm's per-unit costs are independent of the number of firms in the industry.

Identify a likely impact of an increase in market demand on a typical firm in a constant-cost industry that is in long-run equilibrium. • The equilibrium price will increase, while the equilibrium output will decrease. • The equilibrium output will increase, while the equilibrium price will remain unchanged • The equilibrium output will increase, while the equilibrium price will fall. • The equilibrium output and price will both increase.

The equilibrium output will increase, while the equilibrium price will remain unchanged For a constant-cost industry, if demand increases, firms temporarily make a profit as price increases above the minimum needed for the firms to stay in business. This will cause firms to expand output or new firms to enter the industry. Because costs are constant in the long run, the long-run supply curve will be horizontal. Therefore, equilibrium output will increase, while the equilibrium price will remain the same.

Which of the following conditions will guarantee that a firm has achieved productive efficiency? • The firm produces at the minimum point on its total cost curve. • The firm produces at the minimum point on its long-run marginal cost curve. • The marginal revenue from the last unit of the firm's output is zero. • The market price of the firm's product is equal to the minimum average cost.

The market price of the firm's product is equal to the minimum average cost. Productive efficiency occurs when each firm produces at the minimum point on its long-run average cost curve, so the market price equals the minimum average cost.

In a perfectly competitive market, each firm tries to maximize profit by: a. controlling its quantity supplied. b. controlling the market price. c. charging the same customer different prices for different quantity supplied. d. charging different prices to different customers for the same good sold.

a. controlling its quantity supplied.

In a perfectly competitive market, _____. a.buyers and sellers are fully informed about the price and availability of all resources and products b.the average cost of production decreases as firms expand their output level c.patents and licenses make it difficult for firms to enter and leave the market d.the quality of goods offered for sale in the market varies across suppliers

a.buyers and sellers are fully informed about the price and availability of all resources and products

In a perfectly competitive market, the market demand curve is _____, while an individual firm's demand curve is _____. a.downward sloping; horizontal b.downward sloping but relatively flat; downward sloping but relatively steep c.horizontal; downward sloping d.horizontal; vertical

a.downward sloping; horizontal

A perfectly competitive market is characterized by: a.many buyers and sellers, a standardized product, and free entry and exit. b.many buyers and sellers, differentiated products, and free entry and exit. c.many buyers and sellers, a standardized product, and barriers to entry and exit. d.many buyers and few sellers, a standardized product, and barriers to entry and exit.

a.many buyers and sellers, a standardized product, and free entry and exit.

Which of the following is true of a constant cost industry? a. Each firm's long-run average cost curve is a horizontal line. b. Each firm's long-run average cost curve does not shift as industry output changes. c. The long-run average cost curve is downward sloping for all firms. d. The long-run average cost curve is upward sloping for all firms.

b. Each firm's long-run average cost curve does not shift as industry output changes.

Which of the following is true of perfect competition? a. It guarantees firms positive economic profits both in the short run and the long run. b. It guarantees both allocative efficiency and productive efficiency in the long run. c. It ensures that the long-run average costs of a firm always remain constant. d. It ensures that the long-run average costs of a firm always decrease.

b. It guarantees both allocative efficiency and productive efficiency in the long run. Perfect competition guarantees that output is produced at the least possible cost and those goods are produced which are valued most by consumers.

If price is less than marginal cost, a profit-maximizing perfectly competitive firm should: a. increase output. b. decrease output. c. decrease price. d. increase price.

b. decrease output. If price is less than marginal cost, it implies that a firm's marginal revenue is less than its marginal cost. In such a case, the firm could increase profit or reduce its loss by reducing output.

The profit-maximizing rate of output for a firm in a perfectly competitive market is found where: a. total revenue equals total cost. b. price equals average total cost. c. price equals marginal cost. d. marginal revenue equals price.

c. price equals marginal cost.

Each firm tries to maximize economic profit. Economic profit equals: a.the difference between market price and the cost of production. b.the difference between marginal revenue and marginal cost. c.the difference between total revenue and total cost, which includes both explicit and implicit costs d.the difference between total revenue and opportunity cost.

c.the difference between total revenue and total cost, which includes both explicit and implicit costs

A perfectly competitive firm should produce in the short run: a. only if price equals average total cost. b. even if price is less than average variable cost. c. as long as price exceeds average fixed cost. d. as long as price exceeds average variable cost.

d. as long as price exceeds average variable cost.

To maximize total profit in the short run, a perfectly competitive firm must find: a.the quantity at which total revenue is at a maximum. b.the quantity at which total cost is at a minimum. c.the quantity at which total revenue is at a maximum and total cost is at a minimum. d.the quantity at which total revenue exceeds total cost by the greatest amount.

d.the quantity at which total revenue exceeds total cost by the greatest amount.

A firm in a perfectly competitive market has no control over the price because: • the government sets a "fair price" in such markets. • all small firms accept the price set by the largest firm in the market. • there are a limited number of buyers and sellers in the market. • each firm is small relative to the market.

each firm is small relative to the market. Price in a perfectly competitive market is determined by market demand and supply. A perfectly competitive firm is so small relative to the market that the firm's supply decision does not affect the market price.

When the total cost of a competitive firm grows at an increasing rate with an increase in its output, we can conclude that its: • total revenue is zero. • average cost is decreasing. • average cost is constant. • marginal cost is positive and increasing.

• marginal cost is positive and increasing. The marginal cost of a firm is equal to the change in total cost divided by the change in output. When total cost increases at an increasing rate, marginal cost also increases.

In a perfectly competitive market, equilibrium price is determined: a. at the point of intersection of the market demand and the market supply curves. b. at the point of intersection of price and marginal cost. c. at the point of intersection of the marginal cost curve and the average variable cost curve. d. at the point of intersection of the marginal cost curve and the average total cost curve.

a. at the point of intersection of the market demand and the market supply curves.

In short-run equilibrium, under perfect competition, _____. a. economic profit earned by firms can be negative, zero, or positive b. economic profit earned by firms is always zero c. economic profit earned by firms can be zero or positive, but not negative d. economic profit earned by firms is positive, but not zero or negative

a. economic profit earned by firms can be negative, zero, or positive

Which of the following is true of a perfectly competitive market? a. Marginal revenue is always equal to the marginal cost of production. b. Marginal revenue equals market price. c. Market price is always equal to the average cost of production. d. Average revenue equals average cost.

b. Marginal revenue equals market price. Marginal revenue is the change in total revenue resulting from a one-unit change in sales. As a competitive firm sells each unit at the prevailing market price, selling one more unit of a good increases total revenue by the market price. Therefore, marginal revenue equals market price in a perfectly competitive market.

_____ will ensure that each firm produces at the minimum point of its long-run average cost curve in a perfectly competitive market. a. Diminishing marginal returns b. The entry and exit of firms c. A horizontal long-run supply curve d. An upward-sloping long-run supply curve

b. The entry and exit of firms

The perfectly competitive firm's supply curve is: a. that portion of the marginal cost curve that intersects and rises above the average total cost curve. b. that portion of the marginal cost curve that intersects and rises above the average variable cost curve. c. the entire marginal cost curve. d. the rising portion of the average variable cost curve.

b. that portion of the marginal cost curve that intersects and rises above the average variable cost curve.

The demand curve facing a perfectly competitive firm is: a.perfectly inelastic. b.perfectly elastic, each firm can sell the quantity they want at market price c.unit elastic. d.inelastic.

b.perfectly elastic, each firm can sell the quantity they want at market price

Identify the correct statement about the short-run supply curve of a firm. a. It is a horizontal line at the market price. b. It is a vertical line at the quantity supplied by the firm. c. It is an upward-sloping curve. d. It is a downward-sloping curve.

c. It is an upward-sloping curve and is the portion of the marginal cost curve above the shut-down point

The average total cost incurred by a ball bearing manufacturer equals the average revenue earned by him when he produces 1,000 units of output. This implies that at this output level the firm is: • earning an economic profit. • earning a normal profit. • incurring zero fixed costs. • planning to shut down.

earning a normal profit. When the average total cost of production is equal to the market price, the firm is earning a normal profit. This is also known as the break-even point.

The owner of a wheat farm sells her produce in a perfectly competitive market. Her annual wheat turnover amounts to 800 bushels, generating a total revenue of $4,800. However, harvesting the 801st bushel of wheat increases her total cost of farming from $4,800 to $4,806. This implies that the wheat producer's: • average fixed cost will rise if she harvests the 801st bushel of wheat. • revenue will fall by $8 if she harvests the 801st bushel of wheat. • marginal revenue will equal marginal cost for the 801st bushel of wheat. • profit will fall by $10 if she harvests the 801st bushel of wheat.

marginal revenue will equal marginal cost for the 801st bushel of wheat. The average revenue of the firm equals $4,800/800 ═ 6. Since AR ═ price, the price of each bushel of wheat is $6. The average cost of producing 800 bushels of wheat is $4,800/800 ═ $6. When output increases by 1 bushel of wheat, total cost increases by $6. Therefore, MC ═ $6. The marginal revenue is $6.

If two firms in a perfectly competitive market have the same marginal cost, they are likely to: • produce the same quantity at the market price. • earn economic profit in the long run. • charge different prices. • shut down in the short run.

produce the same quantity at the market price.

When a firm achieves allocative efficiency, _____. • the marginal benefit of its output will be equal to its marginal cost of production • the average cost of production will be greater than the market price of the firm's product • the marginal cost of production will be equal to zero • the average revenue from its output will be greater than its average cost of production

the marginal benefit of its output will be equal to its marginal cost of production Allocative efficiency is achieved when each firm produces the output most preferred by consumers and the marginal benefit from the output equals the marginal cost of production.

Mathematically, the average revenue of a firm is calculated as: • the ratio of total revenue and the quantity of output. • the difference between total revenue and marginal revenue. • the ratio of the change in total revenue and the change in output. • the ratio of total revenue and the quantity of input.

the ratio of total revenue and the quantity of output.

The output level at which the average revenue curve is tangent to the minimum point on the average variable cost curve is referred to as: • the profit-maximizing output. • the loss-minimizing output. • the break-even point. • the shutdown point.

the shutdown point. When price just equals the average variable cost, the firm is indifferent between producing and shutting down.

The marginal revenue of a firm is graphically represented by the slope of: • the marginal cost curve. • the demand curve. • the average revenue curve. • the total revenue curve.

the total revenue curve. Marginal revenue is the change in total revenue on account of a change in output. It is equal to the slope of the total revenue curve.

The firms in a perfectly competitive market will expand their scale of operation in the long run if: • the price of the output falls. • they earn economic profits in the short run. • they experience diminishing marginal returns in the short run. • they earn normal profits in the short run.

they earn economic profits in the short run. Short-run economic profit attracts new firms to the industry in the long run. The new entry shifts out market supply, forcing the market price down until economic profit disappears.