Perfect Competition (Pg. 255-279)

To calculate profit, we need to identify three pieces of information

-Price -average total cost -quantity of output

In a perfectly competitive market, homogeneity means that firms much charge the market price for the goods or services they produce because:

-There are hundreds of other perfectly good substitutes. -The market is competitive.

Economic profit equals:

-Total revenue minus economic costs. -Total revenue minus explicit and implicit costs of production.

All firms maximize profits by producing the quantity of output at which the marginal ___ is equal to the marginal ___.

All firms maximize profits by producing a quantity of output at which the marginal revenue is equal to the marginal cost.

A perfectly competitive market involves firms that produce identical products. This guarantees:

Consumers receive the lowest prices.

In the long run,

Firms earn a normal profit.

In a perfectly competitive market, a single firm is a price taker , and therefore, can only charge the ___ price.

In a perfectly competitive market, a single firm is a price taker , and therefore, can only charge the market price.

When it shuts down temporarily in the short run, a perfectly competitive firm:

Still incurs its total fixed costs.

Changes in the variable costs of resources will affect:

The marginal costs faced by firms.

Because the marginal revenue equals the market price for perfectly competitive firms, they should produce output until the market ___ equals the marginal ___.

Because the marginal revenue equals the market price for perfectly competitive firms, they should produce output until the market price equals the marginal cost.

Because the ___ revenue faced by the firm is equal to price, average revenue is also constant and equal price.

Because the marginal revenue faced by the firm is equal to price, average revenue is also constant and equal price

The perfectly competitive model is the most efficient type of market and is characterized by both ___ and ___ efficiency

The perfectly competitive model is the most efficient type of market and it is characterized by both allocative and productive efficiency.

For each of the markets listed below determine whether the market can reasonably be described as perfectly competitive.

-breakfast cereal: not perfectly competitive -sugar: perfectly competitive -Automobiles: not perfectly competitive -Hass avocados: perfectly competitive -Cable television: not a perfectly competitive

A ___ profit simply indicates that the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or to compete in a different industry.

A normal profit simply indicates that the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or to compete in a different industry.

As the market prices decrease, all else held constant, a profit maximizing firm can ____ its production.

As the market prices decrease, all else held constant, a profit maximizing firm can decrease its production.

The extra or additional revenue associated with the production of an additional unit of output is called the ___ revenue.

The extra or additional revenue associated with the production of an additional unit of output is called the marginal revenue.

The firm's short-run supply curve is a(n) ___ -sloping curve that begins at ___ average variable cost

The firm's short-run supply curve is a(n) upward -sloping curve that begins at minimumaverage variable cost

A perfectly competitive firm should produce output until the point where:

Marginal revenue equals marginal cost.

___ profit is also known as zero economic profit.

Normal

Identify the characteristics of a perfectly competitive market.

- A large number of buyers and sellers - Easy entry and exit - Producers who are price takers - A standardized product

By responding to changes in market price, competitive firms produce more of the products we value most and fewer of the products we value least, thereby achieving:

Allocative efficiency.

Average revenue is the:

Amount of revenue per unit of a product sold.

Consider the price elasticity of demand. The demand curve facing a single perfectly competitive firm is perfectly ___.

Consider the price elasticity of demand. The demand curve facing a single perfectly competitive firm is perfectly elastic.

___ profit creates an incentive for other perfectly competitive firms to enter the market.

Economic profit creates an incentive for other perfectly competitive firms to enter the market.

Firms that take or accept the market price and have no ability to influence that price are known as ___.

Firms that take or accept the market price and have no ability to influence that price are known as price takers.

In a perfectly competitive market, we assume the product is ___ in the minds of consumers.

In a perfectly competitive market, we assume the product is homogeneous in the minds of consumers.

In the long run, perfectly competitive firms achieve ___ and ___ efficiency

In the long run, perfectly competitive firms achieve allocative and productive efficiency.

In the presence of ___ profits, firms enter until the market reaches the point at which the firms are generating a(n) ___ profit; then entry stops, and the market settles into its ___ run equilibrium.

In the presence of economic profits, firms enter until the market reaches the point at which the firms are generating a normal profit; then entry stops, and the market settles into its long-run equilibrium.

In the short run supply curve starts at the minimum average ___ cost.

In the short run supply curve starts at the minimum average variable cost.

The long-run relationship between the price and the quantity supplied is given by the

Long-run supply curve.

A market structure characterized by the interaction of large number of buyers and sellers, in which the sellers produce a standardized, or homogeneous, product is known as:

Perfect competition.

Total revenue equals:

Price times quantity.

Allocative efficiency is:

Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals marginal cost.

Profit equals (average ___ minus average total ___) multiplied by output.

Profit equals (average revenue minus average total cost) multiplied by output.

___ equals the total revenue minus the total cost.

Profit equals the total revenue minus the total cost.

Profit equals ___ revenue minus ___ cost.

Profit equals total revenue minus total cost.

Profit equals total ___ minus total ___.

Profit equals total revenue minus total cost.

In the short run, as the price rises,

Quantity supplied rises.

The demand for a perfectly competitive firm's product is a ___ line originating at the market price.

The demand for a perfectly competitive firm's product is a horizontal line originating at the market price.

Total revenue minus the implicit and explicit costs of production is ___ profit.

Total revenue minus the implicit and explicit costs of production is economic profit.

When the total revenue earned by a firm is less than the total cost of production, the firm faces a

When the total revenue earned by a firm is less than the total cost of production, the firm faces a loss.