Chapter 12 Review
What is the value of total fixed cost for this perfectly competitive firm?
$2,400
At which of the following prices is the perfectly competitive firm earning negative economic profit?
$250
What do you expect to happen in this market as it approaches long-run equilibrium?
a shift to the right of the market supply curve as new firms enter
A buyer or seller that is unable to affect the market price is called?
a price taker
The perfectly competitive firm represented in the graph on the right is experiencing
a profit in the short run.
Which of the following are characteristics of a perfectly competitive industry?
all of the above
Based on the numbers in the table, how much should this farmer produce in order to maximize profit?
6 bushels
What is the profit-maximizing level of output if the producer can produce only whole units of output?
6 bushels
Which of the curves is not necessary for determining the level of profit earned by a perfectly competitive firm?
All three curves are needed to determine the level of profit earned by a perfectly competitive firm.
Which demand curve is associated with the shutdown point for this perfectly competitive firm?
Demand2
The demand curve for Farmer Whapple's wheat is horizontal at the market price of $4.00 because
Farmer Whapple is a price taker.
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.
At what level of output does this perfectly competitive firm maximize profit?
Q3
The fact that the demand curve is horizontal implies which of the following?
The firm can sell any amount of output as long as it accepts the market price of $4.00.
If a perfectly competitive firm is producing at point A, which of the following is true?
The firm earns zero economic profit.
As market demand shifts to the left, how will the firm's level of output change?
The firm will decrease its output and suffer losses.
If market demand shifts to the right, how will a competitive firm's level of output change?
The firm will increase its output, and its profits will increase.
When the perfectly competitive firm faces demand curve Demand3, which of the following is true?
The firm will suffer losses, but should continue to operate.
After the market demand curve shifts to the left, which of the following would happen in this perfectly competitive market as it adjusts to long-run equilibrium?
The market supply curve will shift to the left.
If firms in a perfectly competitive industry are earning positive profits, what would you expect to see in the long run?
The market supply curve will shift to the right as firms enter the market, prices will fall, and profits will fall.
What do you expect to happen in this perfectly competitive market as it approaches long-run equilibrium?
The price will decrease until it is equal to the minimum of average total cost, and profits will become zero.
Which of the following conditions must exist in order to have a perfectly competitive market?
There must be many buyers and many sellers, all of whom are small relative to the market.
Economic loss refers to a situation in which a firm's total revenue is less than its total cost. To calculate the amount of a loss, which of the following costs should be included?
both explicit costs and implicit costs
Based on the information on the graph, what is true about marginal revenue?
marginal revenue remains constant as the quantity of bushels sold increases
What does the shaded area in the graph represent for a perfectly competitive firm that produces at output level Q?
negative economic profit
If an individual firm in a perfectly competitive market increases its price, the firm will experience
none of the above
Which term best describes the minimum amount that a firm needs to earn on a $100,000 investment to be willing to remain in a perfectly competitive industry in the long run?
opportunity cost
Which of the following terms best describes how the result of the forces of competition drives the market price to the minimum average cost of the typical firm?
productive efficiency
What is the term given to a cost that has already been paid and cannot be recovered?
sunk cost
Which of the curves in the graph is not necessary for determining the level of output that maximizes profit for a perfectly competitive firm?
the ATC curve
Which of the following best represents profit per unit?
the distance between points A and B
Suppose the graph on the left represents a typical firm's supply curve in a perfectly competitive industry, and there are 100 identical firms in the industry. Then the graph on the right represents
the market supply curve.
Long-run competitive equilibrium is
the situation in which the entry and exit of firms have resulted in the typical firm just breaking even.
To maximize profit, which of the following should a firm attempt to do?
find the largest difference between total revenue and total cost