Chapter 12 economics

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Profit for a perfectly competitive firm can be expressed as

Profit= (P×Q)−(ATC×Q)​, where P is​ price, Q is​ output, and ATC is average total cost.

When maximizing​ profits, MR​ = MC is equivalent to P​ = MC because

the marginal revenue curve for a perfectly competitive firm is the same as its demand curve

Which of the following is a characteristic of perfectly competitive​ markets?

there will be no barriers to new firms entering the market

why do single firms selling an identical product, single firms have no effect on market price?

with many firms selling an identical product, single firms have no effect on market price

In perfect​ competition, long-run equilibrium occurs when the economic profit is

zero

Which of the following best explains why firms​ don't maximize revenue rather than profit?

At the point where revenue is​ maximized, the difference between total revenue and total cost may not be maximized.

When are firms likely to enter an​ industry? When are they likely to​ exit?

Economic profits attract firms to enter an​ industry, and economic losses cause firms to exit an industry.

​"To maximize profit LOADING... ​, a firm should produce the quantity where the difference between marginal revenue LOADING... and marginal cost is the greatest. If a firm produces more than this​ quantity, then the profit made on each additional unit will be​ falling." is this true or false

False. Profit is maximized at the output level where marginal revenue equals marginal cost.

for a market to be PERFECTLY COMPETITIVE, there must be...

MANY buyers and sellers, with all firms selling IDENTICAL products, and NO barrier to new firms entering the marker

​"The economic model of perfectly competitive markets is fine in theory but not very realistic. It predicts that in the long​ run, a firm in a perfectly competitive market will earn no profits. No firm in the real world would stay in business if it earned zero​ profits." Is this remark correct or​ incorrect?

The remark is incorrect because the student has confused accounting profit and economic profit. Firms in a perfectly competitive market earn accounting​ profit, but no economic profit.

Why are firms willing to accept losses in the short run but not in the long​ run?

There are sunksunk costs in the short run but not in the long run.

Are perfectly competitive markets allocativelyallocatively efficient in the long​ run?

Yes, because firms produce where the marginal benefit to consumers equals the marginal cost of productionYes, because firms produce where the marginal benefit to consumers equals the marginal cost of production.

What is a price taker?

a firm that is unable to affect the market place

In the short​ run, a​ firm's shutdown point is the minimum point on the

average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve.

How is the market supply curve derived from the supply curves of individual​ firms?

by horizontally adding the individual firms' supply curves

Suppose Farmer Lane grows and sells cotton in a perfectly competitive industry. The market price of cotton is ​$1.681.68 per​ kilogram, and his marginal cost of production is ​$1.511.51 per​ kilogram, which increases with output. Assume Farmer Lane is currently earning a profit. Can Farmer Lane do anything to increase his profit in the short​ run?

can increase his profit by producing more output

In a perfectly competitive​ market, P​ = MR​ = AR because

firms can sell as much output as they want at the market price

Which of the following is not likely to happen in the pencil​ market?

firms will charge a price above marginal cost in the long run

​"So as long as companies can cover their variable costs and earn at least some revenue to put toward interest​ payments, they will continue to operate even at a​ loss." the interest payments these firms make are a

fixed cost since they do to vary with output

what condition make a market perfectly competitive?

it has MANY buyers and MANY sellers, all of whom are selling IDENTICAL products, with NO barriers to new firms entering the market

The late Nobel​ Prize-winning economist George Stigler once​ wrote, "the most common and most important criticism of perfect competition...​ [is] that it is​ unrealistic." economists believe that the model of perfect competition is important because

it is a benchmark- a market with the maximum possible competition- that economists use to evaluate actual markets that are not perfectly competitive.

when are firms likely to be a price taker when

it sells a product that is EXACTLY THE SAME as ever other firm

What characterizes perfectly competitive markets?

many sellers

The increase in total revenue that results from selling one more unit of output is

marginal revenue

When the demand for cereals increased and the price went up to​ $10.5 per​ twenty-ounce pack, an industry analyst claimed that this would ensure a higher market share for each existing producer. This conclusion is flawed​ because:

new firms are likely to enter the market and compete away the profits.

What determines entry and exit of firms in a perfectly competitive industry in the long​ run?

new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses.

What is the relationship between​ price, average​ revenue, and marginal revenue for a firm in a perfectly competitive​ market?

price is equal to both average revenue and marginal revenue

A buyer or seller that is unable to affect the market price is called

price taker

Perfectly competitive firms should produce the quantity where

the difference between TR and TC is as large as possible

how are pries determined in PERFECTLY COMPETITIVE MARKETS?

the interaction of market demand and supply because firms and consumers are price takers


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