Unit 3 perfect comp

B. Many firms with no control over the market price producing identical products

A perfectly competitive industry is characterized by... A. A single firm with control over the market proce producing a product with no close substitutes B. Many firms with no control over the market price producing identical products C. Many firms with control over the market price producing differentiated products D. A single firm with limited control over the market price producing a product with many close substitutes

A. Price B. Profits C. Quantity produced D. Q at min ATC E. Minimum ATC F. Empty

Label the graph for this perfectly (or purely) competitive cherry producer. Not all boxes will contain labels and not all labels will be used. Labels: 1. Q at min ATC 2. Losses 3. Quantity produced 4. Minimum ATC 5. Profits 6. Price

C. Profits will be equal to zero

Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn-based ethanol fuel increased. What do you expect to happen in the long run for the corn industry given the this recent success? A. The price per bushel of corn will continue to increase, yielding higher profits. Thus, more firms will enter the market indefinitely. B. Profits will become negative due to overfarming, which will result in the corn farming industry going under C. Profits will be equal to zero D. None of the above

C. Profits will be equal to zero

Suppose the firms in the market for bacon, also a perfectly (or purely) competitive industry, experienced losses last quarter due to people becoming increasingly concerned about how high-fat diets negatively impact health. What do you expect to happen in the long run for the bacon industry? A. Seeing this as an opportunity to monopolize a fledging industry, firms will enter the industry, shifting supply to the right B. Profits will remain negative, which will result in the closing down of the industry as a whole C. Profits will be equal to zero D. None of the above

True - At a price of $182, the price is less than the ATC, meaning the firm will earn a negative profit. However, a price of $182 is sufficiently high to cover the firm's variable costs (because AVC). The firm will therefore remain open but lose money.

T/F If the market price is $182, then the firm will produce and earn a negative economic profit. ATC= (TFC+TVC)/Q AVC= AVC/Q

True - The breakeven point occurs when firms earn zero economic profit (normal economic profit). At the point of 200 units, ATC is $200. If price is likewise $200, then the firm is necessarily breaking even. (TFC+TVC)/Q (10,000+30,000)/200= $200

T/F If the market price is $200, then the breakeven point is at 200 units of output.

True - Remember that purely competitive firms can choose the amount they sell. At outputs of 300 and 400, a price of $200 exceeds ATC, meaning the firm would earn a positive profit. ATC= (TFC+TVC)/Q

T/F If the price is $200, then the firm will produce and earn a positive economic profit.

False

T/F The short-run industry supply curve is perfectly elastic.

True

T/F This is a constant-cost industry

False- When earning a temporary loss, perfectly competive firms will shut down if unable to cover their operating expenses. In other words, firms in this situation shut down when price is less than AVC and remain open when price exceeds AVC. Because there are ranges of output where the AVC is less than the price of $160, the firm here will stay open. Tip 18000/100= 180 30000/200= 150 46000/300= 153.30 66000/400= 165 92000/500= 184

T/F If the market price is $160, then the firm will shut down.

(12,12)

The accompanying graph depicts the Marginal Cost (MC), Average Total Cost (ATC), and Marginal Revenue (MR) curves for a perfectly (or purely) competitive firm. Which coordinates should point A be moved to identify the profit maximizing price and quantity for this firm?

A. 4 pumps is the same as 9 pumps B. 2 pumps is less than 8 pumps

The accompanying graph illustrates a perfectly competitive firm's total revenue (TR) curve and total cost (TC) curve. The firm produces pumps, so assume it can only produce whole units of pumps (e.g. it can produce 5 or 6 pumps but not 5.5 pumps). A. When the firm is producing 4 pumps, profit is ____________ when the firm is producing 9 pumps. B. When the firm is producing 2 pumps, profit is ____________ when the firm is producing 8 pumps.

A. ATC at Q profit max B. Losses C. Q Profit max D. Market price

The diagram depicts a cost curve graph of a price-taking firm that is currently operating and producing cherries. Identify each item in the graph of this cherry producer. There are more labels than boxes. The average total cost (ATC), marginal cost (MC), and marginal revenue (MR) curves are already labeled. Labels 1. Losses 2. Q profit max 3. Profits 4. Minimum ATC 5. ATC at Q profit max 6. Market Price 7. Q at min ATC

$600 $400

The graph contains relevant cost curves for a perfectly (or purely) competitive firm. In order for the firm to earn positive economic profits the price of the good must be above what value? Price of a good: $______________ What is the shutdown price for this firm? Shutdown price: $______________

1. 12 Units - in the short run, the lowest quantity the firm produces will be at the shut-down point of $6 and 12 units. 2. $9 - When price is between AVC and ATC, the cost will minimize its losses by operating unit it can get out from under its fixed costs. In the long run, the firm will shut down if price falls below the minimum total cost of $9.

The graph shows the cost curves of an individual firm in a perfectly (or purely) competitive industry. It also shows the firm's short-run supply curve. 1. What is the minimum quantity this firm will produce in the short run? 2. In the long run, the firm will shut down if the market price stays below

A decreasing-cost industry

The long-run industry supply curve in ________ is downward sloping.

Increasing-cost industry

The long-run industry supply curve in ______________ is upward sloping.

price taker

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

1. Formula: TR/Q 1,000/10= $100 2. 14 ; To show max profits P=MC; MR=MC; difference between TR and TC is at the minimum value MR (1400-1300)/(14-13)= 100 MC (400-302)(14-13)= 98 3. $1400-$400= $1,000 4. 17; 1700-874=826 5. (1100-1000)/(11-10)= $100 6. (174-136)/(11-10)= 38

The table shows the cost and revenue information for a perfectly (or purely) competitive firm that produces external hard drives. Use the whole numbers to answer the question. 1. What price does the firm charge for each hard drive? 2. How many units should this firm produce to maximize profits? 3. When profit maximizing, what is this firm's profit? 4. Production of how many units would yield the lowest profits? 5. What is the MR received from the 11th unit? 6. What is the MC of producing the 11th unit?

False

True/False Allocative efficiency refers to the level of output where the marginal revenue is maximized.

False

True/False In a long-run competitive equilibrium, the typical firm maximizes its profits by producing a level of output where the marginal revenue exceeds the marginal cost by the greatest amount possible.

True

True/False In a long-run competitive equilibrium, the typical firm will break even, earning zero economic profits.

True

True/False Productive efficiency occurs when a good or service is produced at the lowest possible cost.

True

True/False Suppose a perfectly competitive, constant-cost industry is in a long-run equilibrium. If there is a decrease in market demand that leads to an economic loss for the average firm, the market price will decrease, and then increase.

False

True/False Suppose a perfectly competitive, constant-cost industry is in a long-run equilibrium. If there is an increase in market demand, firms will exit the industry.

True

True/False With free entry and exit, the price elasticity of supply is higher in the long run than in the short run.

1. 7 (where MR and MC curves intersect) 2. $3 per unit- In perfect competition, the price, MR and demand are all equivalent. 3. $14 Step 1: Total Revenue $3*7 per unit = $21 Step 2: Total Cost $1*$7 per unit = $7 Step 3: Profit $21-$7=$14

Uncle Joseph's farm has costs and revenue as seen in the graph. 1. What is Uncle Joseph's profit-maximizing output? 2. What price will Uncle Joseph receive per unit at the profit-maximizing level of output? 3. Assuming that he maximizes his profit, how much profit will Uncle Joseph earn?

Profit-maximizing output =7 Profit-maximizing price = 3 Profit = Total revenue-Total Cost (7*3)-(7*1)=14 Profit

Uncle Joseph's farm has costs and revenue as seen in the graph. What is Uncle Joseph's profit-maximizing output? Profit-maximizing output: _________ What price will Uncle Joseph receive per unit at the profit-maximizing level of output? ______ Assuming that he maximizes his profit, how much profit will Uncle Joseph earn?

D. When price equals marginal cost

When is allocative efficiency met in a perfectly competitive market? A. when price equals average cost B. when price equals marginal revenue C. when price equals average variable cost D. when price equals marginal cost

Short run

_________ is a period of time during which at least one input is fixed. A perfectly competitive firm will seek the quantity of output where profits are highest or, if profits are not possible, where losses are lowest.

Long Run

__________ is a period of time during which there is no fixed input. in this period all inputs are variable inputs. A perfectly competitive firm will react to profits by increasing production. They will respond to losses by reducing production or exiting the market.

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

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

Perfect competition

each firm faces many competitors that sell identical products

An input that does change as output changes is called variable input. The cost of variable input is called variable cost.

An input that does change as output changes is called _____________________. The cost of this is called _____________________.

An input that does not change as output changes is called fixed input. The cost of fixed input is called fixed cost.

An input that does not change as output changes is called _____________________. The cost of this is called ___________________.

$2*20=40 is total cost $15*20=$300 is total revenue $300-$40=$260 is profit

Cathy is selling homemade earrings. She created the earrings for a cost of $2 per pair and she can sell them for $15 per pair. Assume she sells 20 pairs of earrings in one day. Given this information match the terms with the appropriate dollar amounts. Profit; Total Cost; Total Revenue $2*20=$40 is _________________ $15*20=$300 is _________________ $300-$40=$260 is _______________

A 7

Consider the graph, which depicts a single competitive firm that wishes to maximize profits given its cost of production. What is the profit-maximizing rule for this firm? A. A profit-maximizing firm will produce a level of output such that marginal revenue equals marginal cost B. A profit-maximizing firm will produce a level of output such that marginal revenue exceeds marginal cost C. Any point on the marginal cost curve below marginal revenue will maximize profits D. A profit-maximizing firm will raise prices to the highest point on the marginal cost curve At which level of output will this firm maximize profits?

For firms in perfectly (purely) competitive markets, long run economic profits are zero because firms will exit this market if profits are less than that and enter if profits are greater than that.

Fill in the blanks: Enter, Zero, Exit For firms in perfectly (purely) competitive markets, long run economic profits are _________ because firms will _________ this market if profits are less than that and ___________ if profits are greater than that.

1. Many firms produce identical products 2. Many buyers are available to buy the product, and many sellers are available to sell the product 3. Sellers and buyers have all relevant information to make rational decisions about the product being bought and sold 4. Firms can enter and leave the market without any restrictions- in other words, there is free entry and exit into and out of the market

Firms are said to be in perfect competition when what four conditions occur:

1. No one is required to buy their products 2. Even customers who might want those products may buy from other businesses instead

Firms that operate in perfectly competitive markets face what two realities...

Perfectly elastic

Horizontal demand curve where buyers are willing to buy any numbr of units of output from the firm at the market price

Red is short-run and blue is long-run

Identify the red and blue lines as either short-run or long-run supply curves for a specific industry.

B and E

In the short run, perfectly (or purely) competitive firms will maximize their profit by producing which of the choices.... Select all that apply. A. Any quantity where marginal revenue > marginal cost B. The quantity where marginal revenue = marginal cost C. The largest quantity possible, not considering costs or revenues D. A small quantity to drive up the price E. The quantity where price equals marginal cost