Chapter 8

Ocean Magic is a surfboard company that sells surfboards in a perfectly competitive market. The market price for surfboards in the long run is $300. If Ocean Magic sells 250 surfboards at $300, what is its long-run average total cost?

$300 When a firm is selling at the long-run market equilibrium price, the price equals long-run average total cost.

Foods sold on the street in developing countries are an example of perfectly competitive markets. If a vendor sells an item for the equivalent of $4 each and sells a total of 20 units, what is his or her marginal revenue?

$4 Price equals marginal revenue in perfectly competitive markets, so the marginal revenue is $4.

Ocean Magic is a surfboard company that sells surfboards in a competitive market. If it sells surfboards for $400 each and each surfboard has an average total cost of $325, what is the average profit per unit (APU)? Please choose the correct answer from the following choices, and then select the submit answer button.

$75 Average profit per unit is equal to price minus average total cost, so the equation looks like: APU = $400 − 325, APU = $75.

oligopoly

An oligopoly is an industry in which there are only a small number of firms and high barriers to entry.

Ocean Magic is a surfboard company that sells surfboards in a competitive market. What would happen if the market price for surfboards fell below Ocean Magic's average variable cost?

The company would have to shut down manufacturing in order to minimize losses. Since the firm's variable costs are not being covered, it must shut down production so losses are minimized to only the fixed costs.

perfect competition

a market structure in which a large number of firms all produce the same product Perfect competition is characterized by firms with no market power.

The short-run supply curve is the marginal cost curve above the minimum point on the _____ curve.

average variable cost

Delta Technologies, Inc., operates in a perfectly competitive market and has experienced economies of scale because of advanced technologies that have allowed it to make production more efficient. Delta Technologies, Inc., is in which type of industry? Please choose the correct answer from the following choices, and then select the submit answer button.

decreasing cost industry A decreasing cost industry is characterized by lower costs and prices because of technological advances and economies of scale.

What is the shape of the long-run supply curve in a decreasing cost industry?

downward sloping

In the market for many construction products (e.g., wallboard, lumber) production by all firms is based on government standards. This would be an example of: Please choose the correct answer from the following choices, and then select the submit answer button.

homogeneous products. This is an example of homogeneous, or standardized, products.

The profit maximization rule states that firms maximize profit by producing output at a level at which _____ equals marginal cost. Please choose the correct answer from the following choices, and then select the submit answer button.

marginal revenue

Individual firms are price takers, which means that in a perfectly competitive market they get their prices from the _____ since they are so small they cannot influence market price.

market

A firm that sells a product with no close substitutes and nearly insurmountable barriers to entry is operating under which market structure?

monopoly Monopolies offer products with few close substitutes and operate in a market with nearly insuperable barriers to entry.

Short-run _____ will cause no change in the number of firms in an industry in the long run.

normal profits

For more than two decades, the global commercial airliner manufacturing industry was dominated by Boeing (an American company) and Airbus (a European company). More recently, Embraer (from Brazil) and Bombardier (from Canada) have been gaining market share. With these new entrants the commercial airliner manufacturing industry is an example of which type of market structure? Please choose the correct answer from the following choices, and then select the submit answer button.

oligopoly

The commercial airliner manufacturing industry is dominated by two firms that supply products to the entire world. There are few other firms because of the industry's expensive start-up costs. This industry is an example of which type of market structure?

oligopoly

A firm that has at least some control over the market price is NOT operating under which market structure?

perfect competition

A firm that operates in a market with potential long-run profits is NOT operating under which market structure?

perfect competition or monopolistic competition Both perfect competition and monopolistic competition are characterized by zero long-run profits.

A firm that operates in a market with zero long-run profits is operating under which market structure?

perfect competition or monopolistic competition Both perfect competition and monopolistic competition are characterized by zero long-run profits.

Firms will earn normal profits in a perfectly competitive industry in

the long run. In the long run, firms can only earn normal profits because firms can enter and leave the industry and change the total output for the industry.

Marginal revenue is calculated as

ΔTR/ΔQ. Marginal revenue is the change in total revenue when one more unit of output is sold.