ECON-2302 Chapter 8

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its

allocative efficiency

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

price of competing products

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .

shutdown point

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce

In a perfectly competitive market setting, which of the following would be a true statement? A. Market price automatically sets itself exactly at equilibrium. B. Market price rarely trends toward the equilibrium value. C. Wage rates mirror marginal revenue product levels exactly. D. Wage rates trend toward marginal revenue product levels.

D. wage rates trend toward marginal revenue product levels.

Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers

can also be interpreted as shifts of their respective marginal cost curves

A perfectly competitive industry is a

hypothetical extreme.

______________________ refers to the additional revenue gained from selling one more unit.

marginal revenue

A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ .

entry; a sustained pattern of profits

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

keep the business open in the short-run, but plan to go out of business in the long-run

What happens in a perfectly competitive industry when economic profit is greater than zero? 1. existing firms may expand their operations 2. firms may move along their LRAC curves to new outputs 3. there may be pressure on the market price to fall 4. new firms may enter the industry and all of the above

new firms may enter the industry and all of the above

If the average product for six workers is fifteen and the marginal product of the seventh worker is eighteen, then

the average product is rising