(Complete) Ch.6: Perfectly Competitive Supply

Technological innovations that decreases a firm's marginal cost lead to

an increase

Improvements in technology

make it possible to produce additional units of output at lower cost

average total cost

total cost divided by the quantity of output

If Marjory goes from painting 6 to 8 paintings each month, her total costs increase from $620 to $720 per month. This implies that the marginal cost of one additional painting Is:

$50 (720-620)/(8-6) = 50

Supply curves are upward sloping in part because as prices rise

- firms with higher opportunity cost of producing the product will be willing to start supplying the product - individual suppliers already in the market will be willing to turn to more costly production techniques to supply more of the product

Which of the following are characteristics of perfectly competitive markets?

-Firms can easily enter and exit the market -all firms sell the same standardized product

ATC is

Average total cost

Consider the table on the right, which shows the total cost of producing wedding cakes at Crumby Bakery. If the market price for a wedding cake is $250, and Crumby Bakery is a price-taker, how many wedding cakes should the bakery make each day? Wedding cakes Total cost per day ($ per day) 0 200 1 400 2 500 3 700 4 1,000 5 1,400

3 Since the marginal benefit of selling an additional cake is $250, Crumby Bakery should expand output until it reaches 3 wedding cakes per day. If It produces a 4th wedding cake, the resulting marginal cost ($300) would exceed the marginal benefit.

Consider the table on the right, which shows the total cost of producing wedding cakes at Crumby Bakery. If the market price for a wedding cake is $350, and Crumby Bakery is a price-taker, how many wedding cakes should the bakery make each day? Wedding cakes Total cost per day ($ per day) 0 200 1 400 2 500 3 700 4 1,000 5 1,400

4 Since the Marginal benefit of selling an additional cake is $350, Crumby bakery should expand output until it reaches 4 wedding cakes per day. If It produces a 5th wedding cake, the resulting marginal cost ($400) would exceed the marginal benefit.

If Wahoo's Fish Tacos has $75,000 in revenue each month, and If their total cost Is $68,000 each month, then the monthly profit for Wahoo's Fish Tacos Is _______ dollars.

7,000 Right! Profit = total revenue - total cost = $75,000 - $68,000 = $7,000.

AVC is

Average variable-cost

The increase in total cost that results from carrying out one additional unit of an activity is called

Marginal cost

Suppose that when the price of apples is 25 cents each, there are 10 farmers who each supply 600 apples per day, and 2 farmers who each supply 1,000 apples per day. Thus, when the price of apples Is 25 cents, the market supply of apples is ______ per day.

8000 (10x600)+(2x1000)=8000

Average variable costs is:

A firm's variable cost divided by total output

profit maximization

A method of setting prices that occurs when marginal revenue equals marginal cost.

Variable factor of production

An input whose quantity can be altered in the short run

A Fixed factor of production is

An input whose quantity cannot be altered in the short run

What Principle states that a firm should increase its output if, and only if, the marginal benefit exceeds marginal cost.

Cost-Benefit Principle

Which of the following is NOT a characteristic of perfectly competitive markets?

Each supplier produces a unique variety of the good.

What represents the summation of all the quantities individual sellers offer at the corresponding price?

Every quantity of output along the market supply curve

An input used in the production of a good or service is called.....

Factor of production

The sum of all payments made to the firm's fixed factors of production is called...

Fixed Cost

The sum of all payments made to the firm's fixed factors of production is the firm's_______

Fixed cost

A(n)____ has at least some control over price.

Imperfectly competitive firm

A period of time of sufficient length that all the firm's factors of production are variable is called...

Long run

As output changes from one level to another, the change in total cost divided by the corresponding change in output is the firm's _____.

Marginal cost

short-run shutdown condition

P < minimum value of AVC

Firms in perfectly competitive markets face demand curves that are ____.

Perfectly elastic

Total revenue - Incurred Production Cost = ?

Profit

As the number of suppliers in the market increases, the market supply curve will shift to the _____.

Right

Supply curves shift to the ______ as the number of individual suppliers grows

Right

T/F For every price-quantity pair along the market supply curve, price will be equal to each seller's marginal cost of production.

True

Consumer surplus is

The economic surplus received by a buyer

The sum of all payments made to the firm's fixed and variable factors of production is called...

Total cost

A _______ factor of production is an input whose quantity can be altered in the short run.

Variable

The sum of all payments made to the firm's variable factors of production is the firm's ___.

Variable cost

The sum of all payments made to the firm's variable factors of production is called...

Variable costs

Total cost= _______+_______

Variable costs+Fixed Costs

As input prices increase, the cost of producing each additional unit of output increases, leading to____

a decrease in supply An increase in marginal cost corresponding to a decrease (leftward shift) in supply

A price-taker is

a firm that has no influence over the price at which it sells its product

profitable firm

a firm whose total revenue exceeds its total cost

If the market for apples is perfectly competitive, then the demand curve facing an individual apple producer is:

a horizontal line at the equilibrium price.

Suppose a firm currently employs 99 workers. If labor is the only variable factor of production, and the firm is experiencing diminishing returns, then the:

additional output the firm gets from hiring the 99th worker is greater than the additional output the firm would get from hiring a 100th worker.

A factor of production is.

an input used in the production of a good or service

Total cost divided by total output is:

average total cost

For a firm that produces Jeans, which of the following is likely to be a factor of production? a. Buyers' preferences for jeans b. Sewing machines c. Workers d. Denim

b,c,d

Marginal cost is the:

change in total cost that results from producing one more unit of output

Expectations about future price movements can affect how much sellers

choose to offer in the current market

Suppose a recent announcement by the United States Department of Agriculture leads Mr. Zuckerman, who grows sugar cane, to believe that the price of sugar cane will Increase sharply next year. This should lead Mr. Zuckerman's current supply of sugar cane to____.

decrease

Improvement In technology shifts each individual supply curve

downward

Profit equals _____. price X quantity total cost minus total revenue price minus total cost total revenue minus total cost

total revenue minus total cost

The law of diminishing returns implies that when some of a firm's factors of production are fixed, increased production eventually requires:

ever-smaller increases in the level of output.

In a perfectly competitive market:

firms are price takers.

Suppose an artist has a year-long lease on the studio where she works. When deciding how many paintings to make In a given month, the rent the artist pays for her studio Is considered a ________

fixed cost Since the lease cannot be altered on a monthly basis, the rent the artist pays is a fixed cost.

The firm can increase its profit by expanding production and sales, if price is....

greater than marginal cost,

If a firm is a price taker

has no influence over the price at which it sells its product.

In perfectly competitive markets, firms choose

how much to produce but not the price of their output

The law of diminishing returns explains why marginal costs eventually_______.

increase

The period of time of sufficient length that all of the firm's factors of production are variable is known as the _________ ________.

long run

If the marginal cost of producing an additional unit of a good is less than price of that good, then the firm should

increase production

If a firm's total revenue is greater than its total cost, then the firm ____.

is profitable

Suppose Vera makes hand-knit scarves and sweaters that she sells on Etsy.com. If the price at which Vera can sell her scarves falls, what is likely to happen to Vera's supply of sweaters?

it will increase

Suppose the market for apples is perfectly competitive, and the equilibrium price of apples is $2 per pound. If Apple Valley Farms charges $4 per pound for apples, then:

it will not be able to sell any apples.

Changes in prices of important inputs can give rise to

large supply shifts

Suppose Elsa owns an ice cream shop. If she expects the price of ice cream to fall next month, then this should ____.

lead her current supply of ice cream to increase

The firm can increase its profit by producing and selling less output, if price is...

less than marginal cost,

Suppose the Direct-to-You Delivery Company only has two factors of production: delivery trucks and workers. The number of delivery trucks available to the firm is not easily altered, so the firm's only variable factor of production is labor. Currently, the firm employs 5 workers a day and makes 100 deliveries a day. If the firm is experiencing diminishing returns, then if it hires 5 additional workers each day (so that there are 10 workers in total), it will be able to make _____ deliveries a day.

less than 200

Suppose the owners of a local brewery decide to produce one additional keg of beer, the resulting increase in their total cost is the _____ of producing an additional keg.

marginal cost Marginal cost is the change In total cost Divided By the change in total output. In this case, the change in total output is 1, so marginal cost is simply the change in total cost.

If a firm in a perfectly competitive market chooses the level of output such that price equals marginal cost, then the firm is:

maximizing its profits

If the market for widgets is perfectly competitive, then we would expect:

new firms to be able to easily enter the market for widgets.

A perfectly competitive market is a market in which

no individual seller has a significant influence over the market price of a product

Suppose the market for strawberries is perfectly competitive, and strawberries sell for $3 per pint. If an individual strawberry producer tries to sell strawberries for $4 per pint, then that producer will:

not be able to sell any strawberries.

If a firm doubles the price of its product and its sales fall by only 10 percent, then this suggests that the firm is:

not part of a perfectly competitive market.

At each point along a market supply curve, ________ measures each seller's marginal cost of production

price

If a firm is profitable, then at its profit maximizing level of output______

price is greater than average total cost (P>ATC)

The most important determinant of supply is variation in the

prices of other goods and services that sellers might produce.

The amount by which price exceeds the seller's reservation price is_____.

producer surplus

Supply will increase as the number of _______.

sellers in the market increases

A period of time sufficiently short that at least some of the firm's factors of production are fixed is called...

short run

In a perfectly competitive market, the portion of the marginal cost curve that lies above the average variable cost curve is the firm's:

supply curve

Producer surplus is

the amount by which price exceeds the seller's reservation price

The marginal cost curve passes through the minimum of the:

the average variable cost (AVC) and the average total cost (ATC)

A profit-maximizing firm chooses the level of output that maximizes:

the difference between its total revenue and its total cost.

In the short run, a profit-maximizing firm will not produce anything if

the firm's revenue is less than the variable cost at all levels of production

What allows us to calculate the firm's profit graphically?

the graphical method of finding the profit-maximizing output level

The property that when some factors of production are fixed, increased production of a good eventually requires ever-larger Increases in the variable factor Is known as ____.

the law of diminishing returns

If three firms produce 92 percent of all ketchup bought and sold in the market, then this suggests that:

the market for ketchup is not perfectly competitive.

If a firm is a price taker, then:

the most the firm can charge for its product is the equilibrium price.

Producer surplus sometimes refer to_______ and on other occasions it describes_____

the surplus received by a single seller in a transaction Total surplus received by all sellers in a market or collection of markets

Profit is...

the total revenue a firm receives from the sale of its product minus all costs incurred in producing it

Suppose the owners of a local brewery can easily change the number of workers they hire each day to help brew beer. In deciding how much beer to produce each day, the daily cost of hiring their workers Is a________.

variable cost Since the quantity of workers hired can be easily changed each day, they are considered a variable input, and the cost of hiring them is a variable cost.

average variable cost

variable cost divided by the quantity of output