Unit 2 Chapter 6: Perfectly Competitive Supply

Which of the following capture the conditions under which firms will shutdown?

If price is less than average variable cost even when the firm produces at the level of output that minimizes average variable cost. If the firm's revenue is less than the firm's variable cost at all levels of output.

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

a decrease in supply

Imperfectly competitive firm (price setter)

a firm that has at least some control over the market price of its product

price taker

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

Profit-maximizing firm

a firm whose primary goal is to maximize the difference between its total revenues and total costs

profitable firm

a firm whose total revenue exceeds its total cost

long run

a period of time of sufficient length that all the firm's factors of production are variable

short run

a period of time sufficiently short that at least some of the firm's factors of production are fixed

law of diminishing returns

a property of the relationship between the amount of a good or service produced and the amount of a variable factor required to produce it; the law says that when some factors of production are fixed, increased production of the good eventually requires ever-larger increases in the variable factor

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

an increase in supply

If marginal cost equals average total cost, then:

average total cost is at its minimum

When some of a firm's factors of production are fixed, the law of diminishing marginal returns states that increased production of the good eventually requires

even-larger increases in the variable factor

In a perfectly competitive market, the supply curve for a firm

is the portion of the marginal cost curve that lies above the average variable cost curve

As output changes from one level to another, the change on total cost divided by the corresponding change in output if the firm's_______

marginal cost

Suppose the West End Bakery is currently producing 6 dozen blueberry muffins each day, if the bakery's fixed cost falls, then the bakery's profit maximizing level of output will ______

not change

As prices _____, individual suppliers already in the market will be willing to turn to more costly production techniques to supply more of the product.

rise

Producer Surplus (PS)

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

total cost

the sum of all payments made to the firm's fixed and variable factors of production

fixed costs

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

variable cost

the sum of all payments made to the firm's variable factors of production

profit

the total revenue a firm receives from selling its product minus the total cost of producing it

perfectly competitive market

a market in which no individual supplier has significant influence on the market price of the product

fixed factor of production

an input whose quantity cannot be altered in the short run

Marginal Cost (MC)

the increase in total cost that results from carrying out one additional unit of an activity

Marginal cost is the change in:

the total cost as output moves from one level to another divided by the corresponding change in output

Average Total Cost (ATC)

total cost divided by total output

Average Variable Cost (AVC)

variable cost divided by total output

Factor of production

an input used in the production of a good or service

variable factor of production

an input whose quantity can be altered in the short run

firms in perfectly competitive markets face demand curves that are

perfectly elastic

The difference between the total revenue of a firm and all costs (explicit and implicit) incurred by the firm is called

profit