ECON 212 CH.8

An industry in which the expansion of industry output by the entry of new firms has no effect on the firm's cost curves is called _____________

constant-cost industry

T F A perfectly competitive firm shuts down in the short-run when the market price is less than the average variable cost.

True

T F A perfectly competitive firm will shut down in the short-run when marginal revenue equals marginal cost at a price less than minimum average variable cost.

True

T F A perfectly competitive market is characterized by the free entry and exit of firms.

True

T F In long-run equilibrium, a perfectly competitive firm's short-run marginal cost curve crosses the long-run average cost curve at the lowest point on the long-run average cost curve.

True

T F In the long run, a competitive firm will earn zero economic profit.

True

T F The short-run supply curve and short-run marginal cost curve for a perfectly competitive firm coincide when the market price is greater than average variable cost.

True

Assume that a firm's marginal revenue just barely exceeds marginal cost. Under these conditions the firm should: a. expand output. b. contract output. c. maintain output. d. There is insufficient information to answer the question.

A

In long-run equilibrium, the typical perfectly competitive firm will: a. earn zero economic profit. b. change plant size in the long run. c. change output in the short run. d. do any of the above.

A

T F A perfectly competitive market is characterized by highly advertised goods.

False

The ______for a perfectly competitive firm is a curve showing the relationship between the price of a product and the quantity supplied in the short run. The individual firm always produces along its marginal cost curve above its intersection with the average variable cost curve.

firm's short-run supply curve

A perfectly competitive ___________short- run supply curve is the firm's Marginal cost curve above the minimum point on its average variable cost curve.

firms

10. An industry in which the expansion of industry output by the entry of new firms increases the firm's cost curves is called ____________

increasing-cost industry

A perfectly competitive ________________short- run supply curve is derived from the marginal cost curves in the industry above the minimum point of each firm's average variable cost curve.

industry

The______________ is a curve that shows the quantities supplied by the industry at different prices after firms complete their entry and exit.

industry's long-run supply curve

The__________ for a perfectly competitive firm is the horizontal summation of all firm's short-run supply curves in the industry.

industry's short-run supply curve

A change in total revenue from a one unit change in output is called______

marginal revenue

The change in total revenue from the sale of one additional unit of output.

marginal revenue

_______________ structure is a classification system for key traits of a market.

market

_______ consists of three market characteristics: (1) the number of sellers, (2) nature of the product, and (3) the ease or exit from the market.

market structure

Seller that has no control over price.

price taker

T F If marginal revenue exceeds marginal cost, the perfectly competitive firm earns an economic profit in the short-run.

False

If a competitive firm is incurring economic losses, then it should: a. always shut down. b. shut down if losses are greater than total fixed costs. c. shut down if total fixed costs are greater than losses. d. raise its price.

B

In long-run equilibrium, a competitive firm produces the level of output at which: a. marginal cost is at a minimum. b. short-run average total cost and long-run average cost are at a minimum. c. total revenue is at a maximum. d. diseconomies of scale end.

B

In the short run, a perfectly competitive firm's most profitable level of output is where: a. marginal cost exceeds marginal revenue. b. total revenue is at a maximum. c. marginal cost equals marginal revenue. d. All of the answers above are correct.

C

Perfectly competitive markets are characterized by: a. a small number of very large producers. b. very strong barriers to entry and exit. c. firms selling a homgeneous product. d. All of the answers above are correct.

C

Which of the following is true of a perfectly competitive firm? a. The firm is a price maker. b. If the firm wishes to maximize profits it will produce an output level in which total revenue equals total cost. c. The firm will not earn an economic profit in the long run. d. The firm's short-run supply curve is its MC curve below its AVC curve.

C

In a perfectly competitive industry, assume there is a permanent increase in demand for a product. The process of transition to a new long-run equilibrium will include: a. the exit of firms. b. temporarily lower production costs. c. Both answers a and b are correct. d. Neither answers a nor b is correct.

D

In long-run equilibrium for a perfectly competitive firm, price equals which of the following? a. Economies of real cost. b. Maximum total revenue. c. Diseconomies of scale cost. d. Minimum point on the long-run average cost curve.

D

Market structure describes which of the following characteristics? a. The ease of entry into and exit from the market. b. The similarity of the product sold. c. The number of firms in each industry. d. All of the answers above are correct.

D

The profit maximizing, or loss minimizing, quantity of output for any firm to produce exists at that output level in which: a. total revenue is maximized. b. total cost is minimized. c. marginal cost is minimized. d. marginal revenue equals marginal cost.

D

Under perfect competition, a firm is a price taker because: a. setting a price higher than the going price results in profits. b. each firm's product is perceived as different. c. each firm has a significant market share. d. setting a price higher than the going price results in zero sales.

D

Which of the following is true of a perfectly competitive market? a. If economic profits are earned then the price will fall over time. b. In long-run equilibrium P = MR = SRMC = SRATC = LRAC. c. A constant-cost industry exists when the entry of new firms has no effect on their cost curves. d. All of the answers above are correct.

D

In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will: a. first have a positive slope and then a negative slope. b. have a negative slope. c. be perfectly horizontal. d. be perfectly vertical. e. have a positive slope.

E

T F If marginal revenue exceeds marginal cost in the short-run, total revenue for the perfectly competitive firm is greater than total cost.

False

T F When faced with an economic loss, a competitive firm will exit the industry in the long run.

True

______________ is an industry in which the expansion of industry output by the entry of new firms decreases the firm's cost curves.

decreasing-cost industry

________competition is a market structure with a large number of small firms

perfect

Under ___________the firm is very small relative to the market as a whole, sells a homogeneous product, and firms in the industry are free to enter and exit.

perfect competition

A firm in perfect competition is a (an) _______________because it can sell all it wishes at the market determined price, but it will sell nothing above the given market price.

price taker