ECON Chapter 12
Are perfectly competitive markets productively efficient in the long run?
Yes because firs produce at the lowest average cost possible
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.
The cotton industry's long-run supply curve will be
upward sloping because the long-run average cost of production will be increasing
In a perfectly competitive industry with increasing average costs, the long-run supply curve will be
upward sloping.
Productive efficiency is
when a good or service is produced at lowest possible cost.
In long-run competitive equilibrium, a firm earning zero economic profit
will continue to produce because such profit corresponds with positive accounting profit
Does the market system result in productive efficiency? In the long run, perfect competition
results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost.
Why would a firm produce in the short run while experiencing losses?
A firm would not shut down if by producing its total revenue would be greater than its total variable costs
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.
What is the relationship between a perfectly competitive firm's marginal cost curve and its supply curve?
A firm's marginal cost curve is equal to its supply curve for prices above average variable cost.
Why are consumers so powerful in a market system?
Because it is consumers' demand that influences the market price and dictates what producers will supply in the market.
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.
A student argues: "To maximize profit, a firm should produce the quantity where the difference between marginal revenue 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 the above statement true or false?
False. Profit is maximized at the output level where marginal revenue equals marginal cost.
Which of the following statements is true when the difference between TR and TC is at its maximum positive value?
MR = MC Slope of TR = Slope of TC
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.
Profit for a perfectly competitive firm can be expressed as
Profit equals=(P−ATC)×Q, where P is price, Q isoutput, and ATC is average total cost.
Does the market system result in allocative efficiency? In the long run, perfect competition
Results in allocative efficiency because firms produce where price equals marginal cost.
Which of the following is a characteristic of perfectly competitive markets?
The products sold by all firms in the market will be identical.
Why are firms willing to accept losses in the short run but not in the long run?
There are fixed costs in the short run but not in the long run.
What is a price taker?
a firm that is unable to affect the market price.
The long-run supply curve is
a horizontal line equal to the minimum point on the typical firm's average total cost curve.
If U.S. demand for beef continues to increase, in the long run, beef prices will
all because the supply of beef will increase as new firms enter the industry.
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.
Perfect competition leads to allocative and productive efficiency
because prices reflect consumer preferences. because firms are motivated by profit.
The market supply curve is derived
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 $1.501.50 per kilogram, and his marginal cost of production is $1.571.57 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? Farmer Lane
can increase his profit by producing less output.
If game companies can only break even on the mobile games they develop, in the long run, we would expect them to
continue to develop mobile games because they can cover all costs of production if they break even.
It is possible for profits to increase even if revenue decreases if
costs decrease more than revenue decreases.
In a perfectly competitive market, P = MR = AR because
firms can sell as much output as they want at the market price.
Perfectly competitive firms should produce the quantity where
he difference between total revenue and total cost is as large as possible.
In a perfectly competitive industry with constant costs, the long-run supply curve will be
horizontal.
Allocative efficiency is when every good or service
is produced up to the point where the marginal benefit for consumers equals the marginal cost of producing it
A firm is likely to be a price taker when
it sells a product that is exactly the same as every other firm
What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be
many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.
he increase in total revenue that results from selling one more unit of output is
marginal revenue.
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.
The quote describes logical behavior of solar panel firms in the
short run.
The supply curve for a firm in a perfectly competitive market in the short run is
that firm's marginal cost curve for prices at or above average variable cost.
In perfectly competitive markets, prices are determined by
the interaction of market demand and supply because firms and consumers are price takers.
In perfect competition, long-run equilibrium occurs when the economic profit is
zero.
Why do single firms in perfectly competitive markets face horizontal demand curves?
With many firms selling an identical product, single firms have no effect on market price.
How can GE best maximize its profit?
increase revenues and cut costs.
