Microeconomics: Firms in Perfectly Competitive Markets

According to the graph, which demand curve is associated with the shut down point for this competitive firm?

Demand Curve 2 *MR=AVC so there is no need to continue production*

What does the shaded area in the graph represent for a perfectly competitive firm that produces at output level Q?

Negative economic profit

In perfect competition, when a firm is making a positive economic profit in the short run, then new firms enter the market causing the market supply curve to ___ and the market price to ___

shift rightward, decrease

According to the graph, what is the value of total fixed cost for this perfectly competitive firm?

$2,400 *58X100, 34X100, 5800-3400*

At which price in this graph is the perfectly competitive firm earning negative economic profit?

$250 - because ATC is higher than price which results in a loss represented by the shaded area

According to the graph, which level of output maximizes profit?

8 Shirts per minute *occurs at the level of output that generates the largest vertical distance between two curves*

According to the data in the table, what level of output maximizes profit?

8 units of output because to maximize profit, MR=MC

Long-Run equilibrium in perfect competition results in?

Both productive and allocative efficiency

According to the data in the table, when the price is $4, the firm would produce

Four units of output, although it would suffer a loss from doing so *VC are $13 and the firm is selling the four untis for a total of $16. The difference of $3 would go towards the $17 in fixed costs*

According to the graphs, which of the following is likely to happen in this market in the long run?

No other firms will enter this market *P=AC, so there is zero economic profit*

According to the graph, the shut down point corresponds to:

Point D *the price only covers the VC and does not contribute any money towards FC*

In this graph, the market is initially in long-run equilibrium at point A. If this is a constant-cost industry, after the decrease in demand, which point is likely to be a short-run equilibrium and which point is likely to be the next long-run equilibrium?

Point D is a short-run equilibrium and point C is the new long-run equilibrium

In perfect competition, the marginal revenue is the same as

Price *remember MR=D=AR=P*

A buyer or seller that is unable to affect the market price is called a?

Price Taker

In reference to the graph, at what level of output does this perfectly competitive firm maximize profit?

Q3 *maximized where MR=MC* If it exceeds, the firm can make additional profit

What is the term given to a cost that has already been paid and cannot be recovered?

Sunk Costs

According to the graph, if a perfectly competitive firm is producing at point A, which of the following is true?

The firm earns zero economic profit because MC=MR and MC=ATC

As the market demand shifts to the left, how will the firm's level of output change?

The firm will decrease its output and suffer losses *MR=MC*

Which of the following is a characteristic of a perfectly competitive market?

There are large numbers of buyers and sellers. *Remember* A competitive market has the characterisitics : 1. homogeneity products 2. no barries for entry 3. many buyers and sellers

If the average total cost curve is above the demand curve, then this firm is?

having economic losses

In the short run, the firm should?

operate if price > average variable cost *it would be operating at a loss but it will be less that it would be if the firm shut down. As long as the price is higher than VC, the firm can cover variable costs and put money towards covering fixed costs*

A firm in a perfect competition earns profit if:

price is greater than average total cost

The perfectly competitive firm represented in the graph on the right is experiencing a

profit in the short run. *the point shows that MR>ATC which means the firm is making an economic profit*

Which graph best depicts an industry in which the firm's average costs decrease as the industry expands production?

the graph on the left because it is downward sloping