Economics: Chapter 8

price taker

a firm in a perfectly competitive market that must take the prevailing market price as given

In the long run,

competitive firms' profits are zero.

It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, _______________.

could likely result in a notable loss of sales to competitors

perfect competition

each firm faces many competitors that sell identical products

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

keep the business open in the short-run, but plan to go out of business in the long-run.

break even point

level of output where the marginal cost curve intersects the average cost curve at the minimum point of AC; if the price is at this point, the firm is earning zero economic profits

shutdown point

level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price is below this point, the firm should shut down immediately

Under perfect competition, any profit-maximizing producer faces a market price equal to its

marginal costs

Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run

more firms will enter the market.

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

If a firm's revenues do not cover its variable costs, then that firm has reached its ________________.

shutdown point

marginal revenue

the additional revenue gained from selling one more unit

market structure

the conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold

entry

the long-run process of firms entering an industry in response to industry profits

exit

the long-run process of firms reducing production and shutting down in response to industry losses

long-run equilibrium

where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC