Ch 13

Marginal revenue is the additional revenue generated by selling

an additional unit of a good.

Fixed costs are irrelevant in the decision about whether to shut down production in the short run because fixed costs

do not affect, and are not affected by, the quantity the firm produces.

A firm would want to enter the market if it sees it could produce at a level of

ATC that is below the market price.

The short run market supply curve is upward sloping because each firm supplies

more as the price rises.

Which of the following are examples of standardized goods?

Gold Copper Oil

A firm's short-run supply curve is the same as its:

MC curve at points after it intersects the AVC curve.

Firms will continue entering a market, causing the price to fall until

P = ATC where economic profits are zero.

When losses occur, firms will continue exiting the market, causing the price to rise until

P = ATC where economic profits are zero.

The four defining characteristics of a competitive market are that

buyers and sellers can't bargain over prices. buyers and sellers have full information. goods are standardized. there are no transaction costs.

In a perfectly competitive market, producers focus on the quantity because they

cannot influence the market price.

When P is greater than minimum AVC, the firm should

continue to produce.

As the market price rises, it intersects the marginal ____ curve at a higher output level.

cost

In real life, goods are

differentiated by quality, brand, or other characteristics.

In the long run,

economics profits fall to zero

In the long run, as P = ATC

firms have no incentive to enter the market

Marginal revenue is equal to the price of the good for

firms in a competitive market.

Free entry into a market can

help drive innovation, cost-cutting, and quality improvements.

In a perfectly competitive market in the short run, an increase in demand causes equilibrium price to

increase and the equilibrium quantity to increase.

There are no ___________ in a perfectly competitive market; everyone knows exactly what they are trading.

information asymmetries

When firms are responding to the entry of new competitors, they are more likely to

innovate.

If the market price drops below the minimum AVC, the firm would cease production in the short run because the

loss will be greater than the fixed costs.

A firm should keep producing as long as marginal revenue is

lower than marginal cost

When a market has free entry and exit, there will likely be

more firms competing.

If the market price is lower than ATC but higher than AVC, if the firm continues to produce, the firm will have

more revenue than variable cost.

The average total cost reflects economic costs which include explicit costs and _____ costs.

opportunity

Producers are able to sell as much as they want without affecting the market price in a

perfectly competitive market.

Marginal _____ equals marginal revenue minus marginal cost.

profit

If a firm produces any more than the output level where marginal cost equals marginal revenue, its

profits would go down.

When goods are standardized, buyers have no reason to prefer those sold by one producer over those sold by another,

provided that they are the same price.

Free entry into a market in the short run can help drive

quality improvements. cost cutting. innovation.

The short run market supply curve is the

sum of all firms' MC curves above the minimum AVC.

Over time, as new innovative firms enter the market, entry will result in a decrease in both the MC and the ATC curves, increasing the quantity ______, as well as profits, and driving the market price _____.

supplied; down

As firms exit a market, the market _____ curve decreases.

supply

In a perfectly competitive market,

the market price is the same thing as the firm's marginal revenue and average revenue.

As new firms enter a market, _____.

the short run market supply increases, and the short run market demand decreases

As more firms enter the market,

the short-run market supply curve shifts to the right.

As more firms enter the market,

the total quantity offered for sale at any given price increases.

In a perfectly competitive market in the long run, entry and exit will increase or decrease the market supply curve, until the price returns to

the zero-profit equilibrium price.

When buyers and sellers know exactly what is being traded,

there are no information asymmetries. buyers and sellers have the same information.

In a perfectly competitive market,

there are so many buyers and sellers that no one buyer or seller can set their own price.

In the short run, even if a perfectly competitive firm produces nothing,

they must pay the fixed costs which do not change when quantity falls to zero.

A firm's efficient scale is the quantity that minimizes average _____ cost.

total

Average revenue is

total revenue divided by the quantity sold.

The marginal cost curve is

u-shaped.

A firm's short-run supply curve is the same as its MC curve at points after it intersects the AVC curve because the short run production decision depends entirely on the

variable costs of production.

When deciding whether to produce in the short run, the firm should consider whether price is greater than average _____ cost; but when deciding whether to produce in the long run, the firm should consider whether price is greater than average _____ cost.

variable; total

Producers are able to charge different prices

when goods are differentiated.

A firm should stop increasing production

when marginal cost equals marginal revenue.

Every firm in a competitive market can sell as much as it wants because:

firms will not want to produce an infinite quantity. each firm is small relative to the size of the whole market.

The difference between a firm's variable and total costs is its _____ costs.

fixed

Some costs are ____ only in the short run, but in the long run, all costs become _____.

fixed; variable

Every firm in a competitive market can sell as much as it wants at the market price because any individual firm's choice about the quantity to produce has such a small effect on the total quantity supplied to the market, that the change in market _____ is essentially zero.

price

Marginal revenue is a horizontal line that equals ________.

price

A firm could be making more money by pursuing other opportunities if

price falls below ATC.

In a perfectly competitive market in the long run, because entry and exit will increase or decrease the market supply, until the price returns to the zero-profit equilibrium price,

price is the same at any quantity.

The only choice that a perfectly competitive firm can make to affect its profits, is to decide the

quantity to produce.

In the real world, firms

rarely have the same cost structure.

When deciding whether to produce in the long run, the firm should consider whether average _____ is greater than average total cost.

revenue

Marginal profit equals to marginal _____ minus marginal _____.

revenue; cost

When P is less than minimum AVC, the firm should

shut down.

In a perfectly competitive market in the long run, after all adjustments have occurred, an increase in demand causes equilibrium price to

stay the same and the equilibrium quantity to increase.

If the market price is lower than ATC but higher than AVC, the firm should

still continue to produce in the short run.

In the long run, when firms in a perfectly competitive market earn zero economic profit, they

still have enough revenue to cover their opportunity cost.

The profit-maximizing quantity is the one at which the marginal revenue of the last unit was

exactly equal to the marginal cost.

____ costs neither affect, nor are affected by, the quantity the firm produces in the short run.

Fixed

When there are economics losses in a market,

firms will leave the market.

The firm should produce in the short run if _____; but when deciding whether to produce in the long run, the firm should only produce when _____.

P is greater than AVC; P is greater than ATC.

A firm should shut down when

P is less than minimum AVC.

Economists use the idea of perfectly competitive markets to refer to

an idealized model of markets.

The key difference between supply in the short run and supply in the long run is that in the long run we assume that firms

are able to enter and exit the market.

In a perfectly competitive market, producers can sell as much as they want without affecting the market price because they

are so small relative to the market.

In perfectly competitive markets,

buyers and sellers face very low transaction costs.

As the market price falls, it intersects the marginal <blank> curve at a

cost; lower output level

If firms have differing costs, the more efficient firms, with lower ATC, are able to earn positive _____ profit.

economic

Free _____ means new firms can be created and begin producing goods and services.

entry

A perfectly competitive market can be defined as,

having price-taking buyers and sellers trading standardized goods.

In a perfectly competitive market in the long run, because entry and exit will increase or decrease the market supply until the price returns to the zero-profit equilibrium price, the long run supply curve is

horizontal

In a perfectly competitive market, firms earn zero economic profits

in the long run

The marginal cost curve intersects both average variable and average total cost curves at their _____ points.

lowest

The ability to noticeably affect market prices implies

market power.

A perfectly competitive firm will make profits as long as the

market price is above the firm's average total cost.

In the long run, a firms enter the market,

new market equilibrium price is lower market supply shifts to the right

In the real world, the long-run supply curve may slope upward because

newer firms with higher costs will be attracted to enter a market with higher prices.

Suppose Meg's Marine is producing 14 boats and is considering whether or not to increase its output to 15 boats. At an output of 14 boats, the marginal revenue is $1,000, and the marginal cost is $1200. In this case, they should

not increase production because marginal profit decreases.