ECON 2302: Chapter 10

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At which point will a firm be indifferent whether to shut down or continue to produce?

point b

A purely competitive firm is a price

taker

A purely competitive firm's demand schedule is equal to which of the following?

- marginal revenue - average revenue

Which of the following are considered to be the four basic market structures?

- Monopolistic competition - Pure monopoly - Pure competition - Oligopoly

Which of the following features occur in a purely competitive market?

- Sales in both national and international markets - Many independently acting sellers

Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic?

- The firm cannot obtain a higher price by restricting its output. - The firm does not need to lower its price to increase its sales volume.

Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location?

- prices of variable inputs - technology

Which of the following best describes pure competition?

An industry involving a very large number of firms producing identical products and in which new firms can enter or exit the industry very easily.

A basic feature of the purely competitive market is the presence of ______.

a large number of sellers

A firm operating in a purely competitive market is a price taker because it ______.

cannot change the market price, it can only adjust to it

In a perfectly competitive market, the demand curve for an individual firm is perfectly _______ at the market price.

elastic

The profit-maximizing rule of MR=MC states that in the short run, the firm will maximize profit or minimize loss by producing the output for which marginal revenue ______ marginal cost.

equals

True or false: A pure monopoly involves a very large number of firms producing a single unique product.

false

True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output.

false

Economists group industries into _____ distinct market structures.

four

In pure competition, to calculate economic profit, we first calculate the difference between ________ and average total cost and then multiply it by output.

price

This graph illustrates that a firm can minimize its losses by producing where ______.

price exceeds minimum average variable cost but is less than average total cost

The MR = MC rule is known as the:

profit-maximizing rule

A(n) _____ competitive firm's average-revenue schedule is also known as its demand schedule.

pure

_____ competition is considered to be rare in the real world.

pure

In a purely competitive market, price per unit to the purchaser is synonymous with _____ per unit or _________ revenue to a seller.

revenue/cost; average/marginal

In this table, at a price of $71, the profit-maximizing or loss-minimizing level of output is ______.

0 units

In pure competition, if the first unit of output sold increases total revenue from $0 to $131, marginal revenue for that unit is $131. If the second unit sold increases total revenue from $131 to $262, marginal revenue is again $131. The third unit sold increases total revenue to $______ and marginal revenue is now $______.

393; 131

In this table, at a price of $81.00, the loss-minimizing level of output is _____.

6 units

Which of the following explains why a purely competitive firm is a price taker?

A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market

What is the firm's most likely response if price is exactly equal to minimum average variable cost?

Indifference to producing or shutting down

Strictly speaking, pure competition is relatively rare. Then why do we study it?

It produces ideal results in terms of low-cost production and allocative efficiency, which can be used as a basis of comparison

If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which:

MR=MC

Which of the following best describes a pure monopoly?

One firm selling a single unique product, where entry of additional firms is blocked and there is considerable control over price

Based on the information in this chart, at which price will a firm shut down?

P1

Which of the following is a method of calculating economic profit in pure competition?

Price minus average total cost multiplied by quantity

______ is relatively rare in the real world, although this market model is highly ______ to several industries.

Pure competition; relevant

A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which:

TR exceeds TC by as much as possible

Which of the following best describes the economic break-even point?

The point where total revenue covers all costs, but there is no economic profit.

Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is:

a horizontal line at 2 cents per paper clip.

In a purely competitive market, price per unit to a buyer equals:

average revenue to a seller

Pure __________ involved a very large number of firms.

competition

The firm should produce in the short run as long as the price

exceeds the average variable cost

The quantity of a product supplied by a firm in pure competition should _____ as long as price rises.

increase

Which of the following best describes the situation of a price-taking firm? A price-taking firm is one of a ______ number of firms producing a product that is identical to that of every other firm in the industry and providing ______ of total market supply.

large; only a fraction

The change in total revenue that results from selling one more unit of output is called ________ revenue.

marginal

From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit.

normal

Total revenue equals ______ times ______.

price; quantity

Changes in __________ and changes in prices of variable inputs alter costs and shift the marginal cost or short run supply curve.

technology

When an industry is purely competitive, price can be substituted for marginal revenue in the MR = MC rule because

the demand curve is perfectly elastic and the price is constant regardless of the quantity demanded, so MR is constant and equal to price

The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because when this is true

the last unit produced adds more to revenue than costs, and its production must necessarily increase profits or reduce losses

Multiplying product price by output reveals which of the following?

total revenue

Consider the statement: "Even if a firm is losing money, it may be better to stay in business in the short run." This statement is

true, if the loss is less than the fixed cost

If price is below a firm's minimum average _______ cost, the firm will not operate.

variable

A firm should always stop producing if its average ______ cost is ______ price.

variable; greater than


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