Microeconomics U3

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What is meant by allocative​ efficiency? Allocative efficiency is when every good or service

is produced up to the point where the marginal benefit for consumers equals the marginal cost of producing it.

What conditions make a market perfectly​ competitive? A market is perfectly competitive if

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

The figure illustrates the average total cost​ (ATC) and marginal cost​ (MC) curves for an orange farmer in California. Assume the market for oranges is perfectly competitive. Part 2 Suppose the market price of oranges is ​$20.00 per crate. Characterize the​ farmer's profit. Part 3 At a ​$20.00 ​price, the farmer will

$20

The orange farmer will make a profit if the price of oranges is above ​$20.0020.00 per crate. ​(Enter your response as an​ integer.)

$20

Which of the following best explains why firms​ don't maximize revenue rather than profit?

At the point where revenue is​ maximized, the difference between total revenue and total cost may not be maximized.

When are firms likely to be price​ takers? A firm is likely to be a price taker when

It represents a small fraction of the total market

If a firm decided to maximize​ revenue, would it be likely to produce a smaller or a larger quantity than if it were maximizing​ profit? The firm would produce a ________ quantity of output.

Larger

The increase in total revenue that results from selling one more unit of output is

Marginal Revenue

A startup firm in a perfectly competitive market finds that its average total cost is higher than the market price. Since the firm is incurring​ short-run losses, the management is debating whether to continue operations. Alex​ Ferguson, a senior​ manager, feels that this is a temporary phase and the firm should continue operations. Which of the​ following, if​ true, would support​ Alex's argument?

The current price of the product covers the variable cost of production.

What is the relationship between​ price, average​ revenue, and marginal revenue for a firm in a perfectly competitive​ market?

Price is equal to both average revenue and greater than marginal revenue

Briefly discuss the difference between these two concepts

Productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industries

Which of the following is an expression of profit for a perfectly competitive​ firm? Profit for a perfectly competitive firm can be expressed as

Profit = (P-ATC) x Q, where P is price, Q is output, and ATC is average total cost

Refer to the graph to the right of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the​ following?

The firm can sell any amount of output as long as it accepts the market price of​ $7.00.

Suppose the equilibrium price in a perfectly competitive industry is​ $15 and a firm in the industry charges​ $21. Which of the following will​ happen?

The firm will not sell any output.

How are prices determined in perfectly competitive markets? In perfectly competitive​ markets, prices are determined by

The interaction of market demand and supply because firms and consumers are price takers

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 price taker is

a firm that is unable to affect the market price.

If, for the last unit of a good produced by a perfectly competitive​ firm, MR​ > MC​, then in producing​ it, the firm

added more to total revenue than it added to total costs.

Explain why it is true that for a firm in a perfectly competitive market that P​ = MR​ = AR.

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

What are the three conditions for a market to be perfectly​ competitive? For a market to be perfectly​ competitive, there must be

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

The price of a​ seller's product in perfect competition is determined by

market demand and market supply.

Question content area top Marginal revenue is

the change in total revenue divided by the change in the quantity of output.

Explain why it is true that for a firm in a perfectly competitive​ market, the​ profit-maximizing condition MR​ = MC is equivalent to the condition P​ = MC. Part 2 When maximizing​ profits, MR​ = MC is equivalent to P​ = MC because

the marginal revenue curve for a perfectly competitive firm is the same as its demand curve.

In perfect competition

the market demand curve is downward sloping while demand for an individual​ seller's product is perfectly elastic.

Which of the following is the best example of a perfectly competitive​ industry?

the wheat market.

What is meant by productive​ efficiency? Productive efficiency is

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


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