Econ chapter 8

the significance of the minimum point on the average variable cost curve is that

it is the point of indifference between producing at a loss or shutting down

suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly decreases. What might happen to the typical firm in the long run?

it would experience a lower equilibrium price

if a perfectly competitive firm charges the market price of $14 per unit,

its average revenue is $14 and its marginal revenue is $14

If every firm is a price taker, then which of the following characteristics does their industry have?

large number of sellers

In the short run, a perfectly competitive firm will always shut down if, at all positive output levels, total revenue is

less than variable cost

many auction markets

are perfectly competitive because they involve an identical or nearly identical commodity, many buyers, and because the seller has no influence over the price

individual firms in a perfectly competitive market can

sell all they produce at the market price

In Connecticut, the apple market is perfectly competitive. Suppose that consumer tastes change so that the market demand for apples increases. In that case, the demand curves faced by individual firms will

shift upward

in perfect competition, if one firm raises its price

that firm will lose revenues because other firms will not follow

in perfect competition, if one firm raises its price,

that firm will lose revenues because other firms will not follow

marginal revenue is defined as

the change in total revenue divided by the change in quantity

the short-run supply curve of a perfectly competitive firm is

the part of its marginal cost curve rising above the average variable cost curve

Suppose Thelma and Louise both sell tomatoes in a perfectly competitive market. If Louise increases her output,

the price Thelma can charge is unaffected

if a perfectly competitive firm is incurring a short-run loss, it

will continue to operate in the short run if its variable cost is covered

Suppose that, in the short run, a perfectly competitive firm earns a normal profit. Which of the following is incorrect?

P=AVC

a perfectly competitive firm that should not shut down in the short run will maximize profit where

P=MC

in the short run, a firm will produce a positive amount of output as long as

P>AVC at some output level

allocative efficiency means that

all mutually beneficial trades have taken place

in the long run, a perfectly competitive market will exhibit

allocative and productive efficiency

internet auctions

allow specialized sellers to reach many customers at low cost

which of the following is most likely to be an increasing-cost industry?

an industry that is a major buyer in the markets for the inputs it uses

which of the following is not characteristic of perfect competition?

brand name advertising

a horizontal long-run industry supply curve occurs under conditions of

constant costs

average revenue minus average total cost equals

economic profit per unit of output

Tim Tupper's term paper-typing business is a perfectly competitive firm in long-run equilibrium. Which of the following does not describes the firm's situation?

entrepreneurs outside the industry will be eager to enter

a perfectly competitive firm will produce at an economic loss (negative profit) in the short run rather than discontinue production if there is a rate of output at which price

exceeds average variable cost

Because it is small relative to the market, a perfectly competitive firm faces an inelastic demand curve for its output.

false

Perfectly competitive firms are sometimes called price makers because they have significant control over product price.

false

marginal revenue is the change in total revenue from using one more unit of an input in the short run

false

in a perfectly competitive industry we are likely to find

firms that do not advertise

productive efficiency occurs in markets when

goods are produced at the lowest possible average total cost

suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly increases. What happens to the typical firm in the long run?

it experiences a higher average total cost and equilibrium price

which of the following is not necessarily a characteristic of perfect competition?

low prices

the short-run supply curve of a perfectly competitive firm is the

marginal cost curve, which lies above the average variable cost curve

all of the following are true of a perfectly competitive firm in long-run equilibrium except one. Which is the exception?

marginal cost is minimized

the golden rule of profit maximization states that any firm maximizes profit by producing where

marginal revenue equals marginal cost

the slope of the total revenue curve for a perfectly competitive firm equals

marginal revenue, which is equal to price

the price charged by a perfectly competitive firm is determined by

market demand and market supply

Adam's apples, a small firm supplying apples in a perfectly competitive market, decides to cut its production in half this year. As a result, the

market price will not be affected

economists assume that firms seek to

maximize economic profit

perfectly competitive firms that earn an economic profit in the short run choose the output that

maximizes the difference between total revenue and total cost

Mary Ann and Don provide catering services in a perfectly competitive market. When they started in business, the going rate was $50 per person per meal. After the price increased to $60, they became willing to supply more meals. Their response to the price change is shown by

movement up along their firm's marginal cost curve

If Harry's Blueberries, a perfectly competitive firm, shuts down in the short run, Harry must pay

only fixed cost

commodity products are

perceived by consumers to be identical

the demand curve facing a perfectly competitive firm is

perfectly elastic

To maximize profit, a perfectly competitive firm that decides not to shut down will choose the rate of output at which

price equals marginal cost

Which of the following would not help identify market structure?

price of the good

allocative efficiency occurs in markets when

the value to society of the last unit produced equals its marginal cost

average revenue is

total revenue divided by quantity of output

a perfectly competitive firm will produce at an economic loss in the short run rather than discontinue production if there is a rate of output at which

total revenue exceeds total variable cost

If the loss-minimizing output for a perfectly competitive firm is zero, then, at all other output levels,

total revenue is less than total variable cost

For a perfectly competitive firm, price is identical to marginal revenue at every quantity.

true

If a perfectly competitive firm is producing at a quantity at which MC < AVC, it cannot be maximizing profit in the short run.

true

If a perfectly competitive firm raises its price, its sales decrease to zero.

true

Profit maximization depends upon demand conditions, as well as upon productivity and costs.

true

If a manufacturer shuts down in the short run, it must be true that before the shutdown, at all positive output levels,

variable cost was greater

if a manufacturer shuts down in the short run, it must be true that before the shutdown, at all positive output levels

variable cost was greater than total revenue