Ch 13
Marginal revenue is the additional revenue generated by selling
an additional unit of a good.
Fixed costs are irrelevant in the decision about whether to shut down production in the short run because fixed costs
do not affect, and are not affected by, the quantity the firm produces.
A firm would want to enter the market if it sees it could produce at a level of
ATC that is below the market price.
The short run market supply curve is upward sloping because each firm supplies
more as the price rises.
Which of the following are examples of standardized goods?
Gold Copper Oil
A firm's short-run supply curve is the same as its:
MC curve at points after it intersects the AVC curve.
Firms will continue entering a market, causing the price to fall until
P = ATC where economic profits are zero.
When losses occur, firms will continue exiting the market, causing the price to rise until
P = ATC where economic profits are zero.
The four defining characteristics of a competitive market are that
buyers and sellers can't bargain over prices. buyers and sellers have full information. goods are standardized. there are no transaction costs.
In a perfectly competitive market, producers focus on the quantity because they
cannot influence the market price.
When P is greater than minimum AVC, the firm should
continue to produce.
As the market price rises, it intersects the marginal ____ curve at a higher output level.
cost
In real life, goods are
differentiated by quality, brand, or other characteristics.
In the long run,
economics profits fall to zero
In the long run, as P = ATC
firms have no incentive to enter the market
Marginal revenue is equal to the price of the good for
firms in a competitive market.
Free entry into a market can
help drive innovation, cost-cutting, and quality improvements.
In a perfectly competitive market in the short run, an increase in demand causes equilibrium price to
increase and the equilibrium quantity to increase.
There are no ___________ in a perfectly competitive market; everyone knows exactly what they are trading.
information asymmetries
When firms are responding to the entry of new competitors, they are more likely to
innovate.
If the market price drops below the minimum AVC, the firm would cease production in the short run because the
loss will be greater than the fixed costs.
A firm should keep producing as long as marginal revenue is
lower than marginal cost
When a market has free entry and exit, there will likely be
more firms competing.
If the market price is lower than ATC but higher than AVC, if the firm continues to produce, the firm will have
more revenue than variable cost.
The average total cost reflects economic costs which include explicit costs and _____ costs.
opportunity
Producers are able to sell as much as they want without affecting the market price in a
perfectly competitive market.
Marginal _____ equals marginal revenue minus marginal cost.
profit
If a firm produces any more than the output level where marginal cost equals marginal revenue, its
profits would go down.
When goods are standardized, buyers have no reason to prefer those sold by one producer over those sold by another,
provided that they are the same price.
Free entry into a market in the short run can help drive
quality improvements. cost cutting. innovation.
The short run market supply curve is the
sum of all firms' MC curves above the minimum AVC.
Over time, as new innovative firms enter the market, entry will result in a decrease in both the MC and the ATC curves, increasing the quantity ______, as well as profits, and driving the market price _____.
supplied; down
As firms exit a market, the market _____ curve decreases.
supply
In a perfectly competitive market,
the market price is the same thing as the firm's marginal revenue and average revenue.
As new firms enter a market, _____.
the short run market supply increases, and the short run market demand decreases
As more firms enter the market,
the short-run market supply curve shifts to the right.
As more firms enter the market,
the total quantity offered for sale at any given price increases.
In a perfectly competitive market in the long run, entry and exit will increase or decrease the market supply curve, until the price returns to
the zero-profit equilibrium price.
When buyers and sellers know exactly what is being traded,
there are no information asymmetries. buyers and sellers have the same information.
In a perfectly competitive market,
there are so many buyers and sellers that no one buyer or seller can set their own price.
In the short run, even if a perfectly competitive firm produces nothing,
they must pay the fixed costs which do not change when quantity falls to zero.
A firm's efficient scale is the quantity that minimizes average _____ cost.
total
Average revenue is
total revenue divided by the quantity sold.
The marginal cost curve is
u-shaped.
A firm's short-run supply curve is the same as its MC curve at points after it intersects the AVC curve because the short run production decision depends entirely on the
variable costs of production.
When deciding whether to produce in the short run, the firm should consider whether price is greater than average _____ cost; but when deciding whether to produce in the long run, the firm should consider whether price is greater than average _____ cost.
variable; total
Producers are able to charge different prices
when goods are differentiated.
A firm should stop increasing production
when marginal cost equals marginal revenue.
Every firm in a competitive market can sell as much as it wants because:
firms will not want to produce an infinite quantity. each firm is small relative to the size of the whole market.
The difference between a firm's variable and total costs is its _____ costs.
fixed
Some costs are ____ only in the short run, but in the long run, all costs become _____.
fixed; variable
Every firm in a competitive market can sell as much as it wants at the market price because any individual firm's choice about the quantity to produce has such a small effect on the total quantity supplied to the market, that the change in market _____ is essentially zero.
price
Marginal revenue is a horizontal line that equals ________.
price
A firm could be making more money by pursuing other opportunities if
price falls below ATC.
In a perfectly competitive market in the long run, because entry and exit will increase or decrease the market supply, until the price returns to the zero-profit equilibrium price,
price is the same at any quantity.
The only choice that a perfectly competitive firm can make to affect its profits, is to decide the
quantity to produce.
In the real world, firms
rarely have the same cost structure.
When deciding whether to produce in the long run, the firm should consider whether average _____ is greater than average total cost.
revenue
Marginal profit equals to marginal _____ minus marginal _____.
revenue; cost
When P is less than minimum AVC, the firm should
shut down.
In a perfectly competitive market in the long run, after all adjustments have occurred, an increase in demand causes equilibrium price to
stay the same and the equilibrium quantity to increase.
If the market price is lower than ATC but higher than AVC, the firm should
still continue to produce in the short run.
In the long run, when firms in a perfectly competitive market earn zero economic profit, they
still have enough revenue to cover their opportunity cost.
The profit-maximizing quantity is the one at which the marginal revenue of the last unit was
exactly equal to the marginal cost.
____ costs neither affect, nor are affected by, the quantity the firm produces in the short run.
Fixed
When there are economics losses in a market,
firms will leave the market.
The firm should produce in the short run if _____; but when deciding whether to produce in the long run, the firm should only produce when _____.
P is greater than AVC; P is greater than ATC.
A firm should shut down when
P is less than minimum AVC.
Economists use the idea of perfectly competitive markets to refer to
an idealized model of markets.
The key difference between supply in the short run and supply in the long run is that in the long run we assume that firms
are able to enter and exit the market.
In a perfectly competitive market, producers can sell as much as they want without affecting the market price because they
are so small relative to the market.
In perfectly competitive markets,
buyers and sellers face very low transaction costs.
As the market price falls, it intersects the marginal <blank> curve at a
cost; lower output level
If firms have differing costs, the more efficient firms, with lower ATC, are able to earn positive _____ profit.
economic
Free _____ means new firms can be created and begin producing goods and services.
entry
A perfectly competitive market can be defined as,
having price-taking buyers and sellers trading standardized goods.
In a perfectly competitive market in the long run, because entry and exit will increase or decrease the market supply until the price returns to the zero-profit equilibrium price, the long run supply curve is
horizontal
In a perfectly competitive market, firms earn zero economic profits
in the long run
The marginal cost curve intersects both average variable and average total cost curves at their _____ points.
lowest
The ability to noticeably affect market prices implies
market power.
A perfectly competitive firm will make profits as long as the
market price is above the firm's average total cost.
In the long run, a firms enter the market,
new market equilibrium price is lower market supply shifts to the right
In the real world, the long-run supply curve may slope upward because
newer firms with higher costs will be attracted to enter a market with higher prices.
Suppose Meg's Marine is producing 14 boats and is considering whether or not to increase its output to 15 boats. At an output of 14 boats, the marginal revenue is $1,000, and the marginal cost is $1200. In this case, they should
not increase production because marginal profit decreases.