ECO120 - Sec. 6

perfect competition

A _____ is a market structure with a large number of firms producing an identical product.

enter; decrease

If economic profits are occurring, firms will _____ the industry and the price of the good will _____. (enter / leave) -- (increase / decrease)

too many

If firms in a competitive industry are experiencing losses, then that represents a signal that _____ resources are allocated to that industry and that economic welfare would be improved if the resources were reallocated elsewhere. (too many / too few)

right

If firms in a competitive industry were earning short-run economic profits, one would expect the supply curve to shift to the _____. (right / left)

=

In long-run competitive market equilibrium, price _____ minimum average total cost. (= / < / >)

large; small

Perfect competition has a _____ number of relatively _____ firms. (large / small)

competitive

A _____ firm produces such as small share of industry output that it has insignificant influence on industry price.

no

A competitive firm has _____ power over the price of the good it produces. (no / some / a lot of / total)

true

A competitive firm is a price taker. (TRUE / FALSE)

two

A duopoly exists when there is/are _____ firm(s) in a particular market.

a. Is a competitive firm with no market power

A firm that must take whatever price the market offers for its goods: a. Is a competitive firm with no market power b. Receives less than its marginal cost c. Faces a downward-sloping demand curve d. Has substantial market power

true

A firm, operating in a perfectly competitive industry, expands output up to the point where P = MC. (TRUE / FALSE)

Price falls to the level of minimum average total cost.

Economic profits disappear when:

>

On a graph, the profitable range of output occurs when total revenue _____ total cost. (= / < / >)

a. Price minus average total cost

Profit per unit equals: a. Price minus average total cost b. Average revenue divided by average total cost c. Total revenue minus total cost d. Total revenue minus variable cost divided by quantity

supply

The MC curve is a competitive firm's short-run _____ curve. (demand / supply / revenue)

c. Supply

The ability and willingness to sell specific quantities of a good at alternative prices in a given period of time, ceteris paribus, defines: a. Demand b. Equilibrium price c. Supply d. Economic profit

horizontal

The demand curve facing a perfectly competitive firm is _____. (downward sloping / upward sloping / vertical / horizontal)

False -- induces *ENTRY*

The existence of profits in a competitive industry *induces exits*. (TRUE / FALSE)

market price

The fact that competitive firms are prices takers means that no individual firm has any control over the _____.

marginal cost

The profit maximizing rule is to produce the output level where price equals _____. (marg. revenue / marg. cost / fixed cost / variable cost)

ATC; Q

Total profit can be calculated by using the following formula: PRICE - _____ x _____. (AVC; Q / ATC; Q / MC; Q / MC; MR)

x

Total revenue equals price _____ quantity. (+ / - / x / ÷)

decreases; increases

When new firms enter an industry, price _______ and industry output _______. (increase(s) / decrease(s)

c. Monopoly, oligopoly, monopolistic competition, perfect competition

Which list has market structures in the correct order from the most to the least market power? a. Perfect competition, oligopoly, monopolistic competition, monopoly b. Monopoly, monopolistic competition, oligopoly, perfect competition c. Monopoly, oligopoly, monopolistic competition, perfect competition d. Oligopoly, perfect competition, monopolistic competition, monopoly

All

Which of the following are the most important influences on marginal cost (and supply behavior) ? a. The price of factor inputs b. Technology c. Expectations d. All

Market supply

_____ is the total quantity of a good that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus.

competitive firms

_____ produce identical products and charge identical prices.

c. Their individual production is insignificant relative to the production of the industry

Competitive firms cannot individually affect market price because: a. There is an infinite demand for their goods b. The market demand curve is flat or horizontal c. Their individual production is insignificant relative to the production of the industry d. The government exercises control over the market power of competitive firms

low

Competitive markets have _____ barriers to entry. (low / high / significant)

b. Profit

If marginal cost equals price, then _____ is at a maximum. a. Total cost b. Profit c. Total revenue d. Marginal cost

increase

If price is greater than marginal cost, the firm should _____ its output rate. (maintain / increase / decrease / stop)

long

In a _____-run competitive equilibrium, economic profits are zero, P = MC, and price = minimum ATC.

a. New firms to enter the market

In a competitive market, in the long run, economic profits will cause: a. New firms to enter the market b. Existing firms to leave the market c. Supply to decrease d. Demand to decrease

equal to

In a perfectly competitive firm, marginal revenue is always _____ price. (less than / greater than / equal to)

d. Minimum average total cost; zero

In long-run competitive market equilibrium, price equals _______ and economic profit is _______. a. Minimum average variable cost; zero b. Maximum average variable cost; greater than zero c. Maximum average total cost; greater than zero d. Minimum average total cost; zero

=

In perfect competition, profits are maximized at the output level where P _____ MC. (= / > / <)

zero

In the long run, there will be a tendency toward _____ economic profits. (positive / negative / zero)

downward sloping

In the perfectly competitive catfish market, the market demand curve is _____. (downward sloping / upward sloping / vertical / horizontal)