Chapter 12 Firms in Perfectly Competitive Market

b. average variable cost.

33. A perfectly competitive firm will shut down in the short run if price is less than a. marginal cost. b. average variable cost. c. average revenue. d. None of the above is true.

Marginal revenue (MR)

the change in total revenue from selling one more unit of product

d. sunk cost

19. What is the term given to a cost that has already been paid and cannot be recovered? a. unrecoverable cost b. variable cost c. implicit cost d. sunk cost

b. positive.

24. If the demand curve for a perfectly competitive firm is above its average total cost curve, then this firm's profit is a. negative. b. positive. c. zero. d. none of the above.

b. downward sloping; a horizontal line

1. Fill in the blanks. The market demand curve for a good produced in a perfectly competitive market is _______, while the demand curve for one firm in a perfectly competitive market is _______ . a. horizontal line; downward sloping b. downward sloping; a horizontal line c. downward sloping; a vertical line d. None of the above is correct.

a. marginal revenue, average revenue, and price are all equal.

11. In perfect competition, a. marginal revenue, average revenue, and price are all equal. b. marginal revenue equals average revenue, but average revenue is greater than the price. c. average revenue equals price, but marginal revenue is greater than the price. d. none of the above occurs

d. all of the above

2. A perfectly competitive market is a market with which of the following conditions? a. many sellers and buyers b. homogonous product c. no barriers to entry d. all of the above

b. perfectly elastic.

25. The demand curve facing a perfectly competitive firm is a. perfectly inelastic. b. perfectly elastic. c. unit elastic. d. none of the above.

a. the change in total revenue that results from selling one more unit of output.

3. Marginal revenue is a. the change in total revenue that results from selling one more unit of output. b. the change in average revenue that results from selling one more unit of output. c. the change in total cost that results from selling one more unit of output. d. none of the above.

a. The firm will increase its output, and its profits will increase.

30. If market demand shifts to the right, how will a competitive firm's level of output change? a. The firm will increase its output, and its profits will increase. b. The firm will need to decrease its output and suffer losses. c. The firm will keep its output constant, but its profits will increase. d. The firm will decrease its output, which will increase its profit.

b. shut down.

31. A perfectly competitive firm is losing money in the short run, and its total revenue is less than its total variable cost. In order to minimize its losses in the short run, this firm should a. continue production. b. shut down. c. either continue production or shut down. d. do none of the above.

c. both a and b.

32. Profit is measured as a. total revenue minus total cost. b. profit per unit multiplied by the quantity sold. c. both a and b. d. none of the above.

a. increase; decrease

36. In perfect competition, when a firm is making positive economic profit in the short run, then new firms enter the market causing the market supply curve to _______ and the market price to _______. a. increase; decrease b. decrease; increase c. increase; increase d. decrease; decrease

b. productive efficiency

38. Which of the following terms best describes how the result of the forces of competition drives the market price to the minimum average cost of the typical firm? a. allocative efficiency b. productive efficiency c. decreasing-cost industry d. competitive markdown

a. allocative efficiency

39. Which of the following terms best describes a state of the economy in which production reflects consumer preferences? a. allocative efficiency b. productive efficiency c. capitalism d. consumer equilibrium

c. both (a) and (b).

40. Long-run equilibrium in perfect competition results in a. productive efficiency. b. allocative efficiency. c. both (a) and (b). d. none of the above.

d. both (b) and (c).

5. The equilibrium level of output is where a. total revenue equals total cost. b. marginal revenue equals marginal cost. c. slope of total revenue equals slope of total cost. d. both (b) and (c).

c. both (a) and (b).

6. In perfect competition, marginal revenue equals to a. average revenue. b. price. c. both (a) and (b). d. none of the above.

a. total revenue equals total cost.

8. The equilibrium level of output in perfect competition is where a. total revenue equals total cost. b. price equals marginal cost. c. average revenue is greater than the price. d. none of the above.

b. profit per unit is zero.

9. In perfect competition, the long-run equilibrium happens when a. profit per unit is positive. b. profit per unit is zero. c. profit per unit is negative. d. none of the above

Sunk cost

A cost that has already been paid and cannot be recovered

Perfectly Competitive Market

A market that meets the conditions of (1) many buyers and sellers (2) all firms selling identical products, and (3) no barriers to new firms entering the marketer

Shutdown point

The minimum point on a firm's average variable cost curve; if the price falls between this point the firm shuts down production in the short run

average revenue (AR)

Total revenue divided by the quantity of the product sold

Price taker

a buyer or seller that is unable to affect the market price

Economic profit

a firm's revenue minus all its cost, implicit and explicit

allocative efficiency

a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to he marginal cost of producing it

Economic loss

the situation in which a firms total revenue is less than its cost, including all implicit costs

Productive efficiency

the situation in which a good or service is produced at the lowest possible cost

long run competitive equilibrium

the situation in which the entry and exit of firms as resulted in the typical firm breaking even

profit

total revenue minus total cost