Perfect Competition Test (Ch. 23)

TR

_____ > TC, then firm is earning an economic profit

VC

_____ change with a change in output

FC

_____ do not change with a change in output

ATC curve

_____ is added to determine if this firm is making an economic profit, an economic loss, or breaking even

allocative efficiency

_____ is where P=MC

productive efficiency

_____ is where P=min ATC

TFC

_____ stay constant, even if you produce nothing!

explicit costs

monetary payments a firm must make to an outsider to obtain a resource=

product differentiation

monopolistic competition is close to pure or perfect competition except that there is _____

breakeven

no profit, but no loss either; TR=TC

oligopoly

occurs when a few firms control the market

MB=MC

other things being constant, the most efficient allocation of resources occurs when?

homogenous

perfect competition exists when there are many producers and many consumers of a _____ product

elastic

perfectly competitive FIRM demand curve is perfectly _____

downward

perfectly competitive INDUSTRY/MARKET demand curve is _____ sloping

shutdown point

price at which a firm ceases to produce in the SR; temporary b/c firm hopes price will go back up and then will start to produce again=

supply

upward sloping segment of the MC curve is the firm's individual _____ curve

P=MC=min ATC, LR equilibrium

we love perfect competition bc produce where _____ aka _____

TFC, VC

when P=AVC or P<AVC, firm can't cover any of its _____ so why produce when your _____ are the real production costs

monopoly

when one firm controls the market

due to decreasing marginal returns (law of DMR)

why does MC finally increase?

due to increasing marginal returns

why does MC initially decrease?

identical cost curves, and constant costs

2 assumptions for LR equilibrium

fall, rise

ATC and AVC _____ when MC is below them and _____ when MC is above them

SR

FC exits only in the _____

decreases, decreases economic loss exit, decreases, increases, decreases breakeven point

If Demand decreases: Price _____, Quantity _____ Firms accept lower prices, so it's an _____ Firms _____ the market; Supply ____, Price _____, Quantity _____ Firms accept a new higher price...back to _____ point

increases, increases enter increases, decreases, increases breakeven

If Demand increases: Price _____, Quantity _____ Firm makes profits at a higher price, so more firms _____ the market Supply _____, Price _____, Quantity _____ Firms back to _____ point

economic profits, enter, right, decrease, increase, decrease

In the LR, when individuals see that firms are earning _____, more firms _____ into the market, causing the industry supply curve to shift _____, industry/market price to _____, and industry quantity to _____. Firms' quantities _____.

exit

LR decision to leave the market=

P= min ATC= breakeven point

LR equilibrium= (3)

lowest points

MC curve crosses the AVC curve and ATC curve at their lowest points

law of DMR

MC eventually rises bc of the _____

many differentiated relatively easy yes yes

Monopolistic Competition: number of firms= differentiate or homogenous product?= easy of entry?= price-setting power= none-price competition=

one unique product very difficult price setter usually breaks up bc of inability to control competition

Monopoly: number of firms= differentiate or homogenous product?= easy of entry?= price-setting power= none-price competition=

few large firms ("big business") differentiated and interdependent difficult yes LOTS

Oligopoly: number of firms= differentiate or homogenous product?= easy of entry?= price-setting power= none-price competition=

many small firms homogenous very easy market determines price none

Perfect Competition: number of firms= differentiate or homogenous product?= easy of entry?= price-setting power= none-price competition=

shut down

a SR decision not to produce anything during a specific period of time due to market conditions=

DMR

a firm's SR marginal cost cure will eventually increase because of _____

LR

a monopoly firm can make economic profits in the ____, although this is not guaranteed

MR=MC, demand

a monopoly firm maximizes profits by producing at the quantity where _____ and by setting price according to the _____ curve at that quantity

price, marginal cost, misallocation

a monopoly firm will operate where _____ is greater than _____, causing a _____ of resources

allocatively and productively

a perfectly competitive firm is _____ and _____ efficient in the LR

variable

all input costs are _____ in the LR

MB=MC

allocatively efficient where?

fixed

at least one input price is _____ in the SR

P< or = to AVC

at what point should a firm shut down?

allocatively, productively

bc firm produces where MC=MR or P=MR, firm will always be _____ efficient but not always _____ efficient

LR

defined as a period in which there are no FC, and firms are free to allocate their resources as they please

elastic

demand is perfectly _____, meaning you can buy an infinite amt of g/s at one price

total costs

equal FC plus VC

permanent, LR

exiting the industry is _____ and in the _____

price, takes, industry

firm cannot control the _____ at which it sells the product but _____ the price as given by the industry and determines how much output to produce

Price is above ATC at the profit-maximizing quantity

firm is earning a profit if?

economic profit

firm makes an _____ if it more than covers bot its explicit and implicit costs

accounting profit

firm makes an _____ when its revenue exceeds its explicit costs

MR

for a monopoly firm or any firm under imperfect competition, _____ is less than price

profitable breaks even unprofitable

if P>ATC, the firm is ____ if P=ATC, the firm _____ if P<ATC, the firm is _____

profitable breaks even unprofitable

if TR>TC, the firm is _____ if TR=TC, the firm _____ if TR<TC, the firm is _____

economic loss

if a firm has more costs than revenue, it operates at an _____

economic profit

if a firm has more revenue than costs, it makes an _____

breaks even

if a firm has revenue that just covers all its costs, it _____

economic profit, normal profit, implicit cost

in LR equilibrium, firm makes zero _____ but makes a _____ bc it is an _____

MR=MC

in a perfectly competitive market, all firms maximize profits by producing where?

FC, VC

in a shut down, you still have to pay _____, just not _____

FC or VC

in an exit, you pay no _____ nor _____

higher, lower

in the LR, a monopoly firm charges at a _____ price and produces at a ____ output than a perfectly competitive firm with the same cost curves

P=MC=min ATC

in the LR, a perfectly competitive firm produces at an output where?

breakeven point

in the LR, firm always returns to _____

VC

in the SR, a firm can operate at a loss as long as its revenue covers its _____

implicit costs

income a firm sacrifices when it employs a resource it owns to produce a product instead of selling the resource to someone else

productively efficient

producing at the lowest production cost=

allocatively efficient

producing the quantity of g/s that society wants

LR equilibrium

productive efficiency and allocative efficiency are the same when a perfectly competitive market is in _____

MC= min ATC

productively efficient where?

MR=MC

profit-maximizing rule

normal profit

represents the opportunity cost of capital and is equal to the avg return on investment

MC

the additional cost of producing an additional unit of output; very impt in determining at what price and output a firm will operate=

sum, supply curves

the industry/market supply curve is the _____ of the individual firms' _____