Perfect Competition

If a perfectly competitive firm is producing output at a point where marginal revenue is equal to marginal cost, then it should:

Stick with that level of production in order to maximize profits (correct) Increase output in order to maximize profits Decrease output in order to maximize profit

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________.

Supply curve Average variable cost curve Demand curve Average total cost curve (incorrect)

Marginal Revenue

The additional revenue gained from selling one more unit

Market Structure

The conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold

Recall that in perfect competition a firm's demand curve is a horizontal line drawn at the market price level and that P=MR. With this in mind, based on the figure below, total revenues are:

$220 $264 $240 (incorrect) $200

Recall that in perfect competition a firm's demand curve is a horizontal line drawn at the market price level and that P=MR. With this in mind, based on the figure below, total revenues are:

$220 $264 $240 * $200 (incorrect)

Given the data provided in the table below, what will the fixed costs equal for production at quantity (Q) level 4?

$35.00 $4.00 $36.00 $9.00 (correct)

Recall that in perfect competition a firm's demand curve is a horizontal line drawn at the market price level and that P=MR. With this in mind, based on the figure below, total revenues are:

$660 $720 $432 $576 (incorrect)

Recall that in perfect competition a firm's demand curve is a horizontal line drawn at the market price level and that P=MR. With this in mind, based on the figure below, total variable costs are:

$720 $660 $432 (correct) $576

Perfectly Competitive Industry Characteristics

1) A large number of small firms 2) Identical products sold by all firms 3) Perfect resource mobility or the freedom of entry into and exit out of the industry 4) Perfect knowledge of prices and technology

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have achieved:

Allocative efficiency (correct) Productive efficiency Utility-maximizing efficiency

A perfectly competitive firm should not shut down immediately as long as the price is:

Lower than the zero-profit point Higher than the average variable cost (correct) Higher than the average total cost (incorrect) Lower than the average variable cost (incorrect)

Marginal Revenue formula

Marginal Revenue = Change in total revenue/Change in quantity

​The profit-maximizing choice for a perfectly competitive firm will occur where marginal revenue is equal to ________.

Marginal cost (correct) Fixed cost Variable revenue

The point where the marginal cost curve crosses the average cost curve is called the:

Shut-down point Zero-profit point (correct) Profit-maximizing point

​The demand curve for a firm in a perfectly competitive market is different from that of the entire market. The market demand curve ________, while the perfectly competitive firm's demand curve ________.​

Slopes upward: is a horizontal line Slopes downward: is a horizontal (correct) Is a horizontal line: slopes upward

Refer to the graph below. Total profit is:

$144 (correct) $132 $243 $288

Recall that in perfect competition a firm's demand curve is a horizontal line drawn at the market price level and that P=MR. With this in mind, based on the figure below, total costs are:

$200 $264 (correct) $240 $220

perfectly competitive firm (aka. price taker)

A firm in a perfectly competitive market that must take the prevailing market price as given. The pressure of competing firms forces them to accept the prevailing equilibrium price in the market

Firms operating in a market situation that creates ________, sell their product in a market with other firms who produce identical or extremely similar products.

A free-market Perfect competition (correct) An oligopoly A perfect monopoly

Who can influence the market price in perfect competition?

Any individual buyer Any individual seller No individual buyer or seller (correct)

Increasing Cost Industry

As the market expands, the old and new firms experience increases in their costs of production, which makes the new zero-profit level intersect at a higher price than before

Decreasing Cost Industry

As the market expands, the old and new firms experience lower costs of production, which makes the new zero-profit level intersect at a lower price than before. In this case, the industry and all the firms in it are experiencing falling average total costs

Refer to the diagram below. Based on the information illustrated in this graph, which of the following is an accurate statement?

Because this is a perfectly competitive firm, the profit maximizing rule is not P=MR Production should keep expanding because MR is always less than MC Profits will be reduced by expanding production to the zone where MC exceeds MR (correct) Because this is a perfectly competitive firm, the profit maximizing rule is not P=MC

Marginal Cost Formula

Change in total cost/Change in quantity

Even if it is making economic losses, a perfectly competitive firm should keep operating in the short run so long as the price is not:

Higher than the average variable cost Lower than the average total cost Lower than the average variable cost (correct)

In long run equilibrium, firms ________.

Earn negative economic profit Earn positive economic profit Neither enter nor exit the industry (correct)

In perfect competition if firms produce where P=MC they ensure ________ because the social benefits of production as measured by the price that people are willing to pay, are in balance with the ________ to society of that production.

Economic efficiency: total revenues Allocative efficiency: marginal costs (incorrect) Economic efficiency: Marginal revenues Allocative efficiency: costs

Suppose there is a perfectly competitive market for grapefruit. If the price for grapefruit is lower than the marginal cost of producing grapefruit, what will happen in the long run, in order for the market to achieve productive and allocative efficiency?

Fewer grapefruit will be produced (correct) More grapefruit will be produced The same amount of grapefruit will continue to be produced

Perfectly Competitive Firm

Has only one major decision to make—namely, what quantity to produce

What is the shape of a marginal revenue curve for a perfectly competitive firm?

It slopes upward It slopes downward (incorrect) It is flat *

Shutdown Point

Level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price is below this point, the firm should shut down immediately

If a firm's revenues do not cover its average variable costs, then that firm has reached its ________.​​

Opportunity margin Price-taking point Shutdown point (correct)

Does this graph show the demand curve for a perfectly competitive firm, a perfectly competitive industry, or neither?

Perfectly competitive firm (correct) Neither Perfectly competitive industry

The term ________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

Price setter Business entity Price taker (correct) Trend setter

For a perfectly competitive firm in the long run, all of the following conditions hold EXCEPT:

Price=MC (marginal cost) Price=minimum ATC (average total cost) Price=AFC (average fixed cost) (correct) MC=minimum ATC (average total cost)

Profit formula

Profit = Total Revenue-Total Cost = (Price)(Quantity Produced)-(Average Cost)(Quantity Produced)

How is the total revenue calculated in a perfectly competitive firm?

Quantity of goods sold times the market price (correct) Quantity of goods sold times the market price, minus the fixed costs Quantity of goods sold minus the production costs

Which of the following statements accurately explains why profits for firms in a perfectly competitive industry tend to vanish in the long run?

The demand for products falls over time, so firms are unable to generate revenue Firms that experience losses try to increase supply to cover their costs, leading to zero profits Prices drop when other perfectly competitive firms see an opportunity to earn profits and enter the market (correct)

In perfectly competitive market, which of the following is correct?

The firm's demand curve is downward sloping and the market demand curve is downward sloping The market's demand curve is flat and the firm's demand curve is downward sloping The market demand curve is downward sloping and the firm's demand curve is flat (correct)

In a perfectly competitive market, which of the following is correct?

The firm's demand curve is perfectly elastic (correct) The market demand curve is upward sloping The firm's demand curve is downward sloping

Exit

The long-run process of reducing production and shutting down in response to a sustained pattern of industry losses

Which of the following are assumptions of perfect competition?

The products are identical (correct) There are many buyers and sellers (correct) Consumers have all the relevant information to make rational buying decisions (correct)

Pete owns a firm that produces wheat in a purely competitive market. The firm's demand curve is a:

Vertical Line Horizontal line (correct) Downward sloping line

Entry

When new long-un process of firms entering an industry in response to increased industry profits

Perfect Competition

When the following conditions occur: (1) many firms produce identical products; (2) many buyers are available to buy the product, and many sellers are available to sell the product; (3) sellers and buyers have all relevant information to make rational decisions about the product being bought and sold; and (4) firms can enter and leave the market without any restrictions—in other words, there is free entry and exit into and out of the market. each firm faces many competitors that sell identical products

Constant Cost Industry

Whenever there is an increase in market demand and price, then the supply curve shifts to the right with new firms' entry and stops at the point where the new long-run equilibrium intersects at the same market price as before

Long-run equilibrium

Where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC

Firms in a perfectly competitive market are said to be "price takers"—that is, once the market determines an equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?

Yes, you would raise the price enough to meet your target pricing Yes, you would raise the price slightly No, you would not raise the price (correct)