Chapter 14 - Microeconomics
Sunk Cost
A cost that has already been committed and cannot be recovered
A competitive firm's long-run supply curve is the portion of its marginal-cost curve that lies above its average-variable-cost curve.
False - it is the portion of the MC curve that lies above its average-total-cost curve.
A competitive firm's short-run supply curve is the portion of its marginal-cost curve that lies above its average-total-cost curve.
False - it is the portion of the MC curve that lies above its average-variable-cost curve.
If marginal cost exceeds marginal revenue at a firm's current level of output, the firm can increase profit if it increases its level of output.
False - the firm increases profits if it reduces output.
In the short run, if the price a firm receives for a good is above its average variable costs but below its average total costs of production, the firm will temporarily shut down.
False - the firm will continue to operate in the short run as long as price exceeds average variable costs.
The only requirement for a market to be perfectly competitive is for the market to have many buyers and sellers.
False - the goods offered for sale are largely the same and (possibly) firms can freely enter or exit the market.
The short-run market supply curve is more elastic than the long-run market supply curve.
False - the long-run market supply curve is more elastic than the short-run market supply curve.
Which of the following is not a characteristic of a competitive market?
Firms generate small but positive economic profits in the long run.
Which of the following markets would most closely satisfy the requirement for a competitive market
Gold Bullion
For a competitive firm, marginal revenue is
Equal to the price of the good sold
Marginal Revenue
the change in total revenue from an additional unit sold
Competitive market
A market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
If a competitive firm doubles its output, its total revenue
Doubles
If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it
Increase production
The competitive firm maximizes profit when it produces output up to the point where
Marginal cost equals marginal revenue
Average Revenue
Total revenue divided by the quantity sold
A firm maximizes profit when it produces output up to the point where marginal cost equals marginal revenue.
True
For a competitive firm, marginal revenue equals the price of the good it sells.
True
If a competitive firm sells three times the amount of output, its total revenue also increases by a factor of three.
True
If the price of a good rises above the minimum average total cost of production, positive economic profits will cause new firms to enter the market, which drives the price back down to the minimum average total cost of production.
True
In a competitive market, both buyers and sellers are price takers.
True
In the long run, if firms are identical and there is free entry and exit in the market, all firms in the market operate at their efficient scale.
True
In the long run, if the price firms receive for their output is below their average total costs of production, some firms will exit the market.
True
In the short run, the market supply curve for a good is the sum of the quantities supplied by each firm at each price.
True
In the long run, perfectly competitive firms earn small but positive economic profits
they earn zero economic profits in the long run.