ECO/365 Perfect Competition

Consider the graph below: If the market price is $11, this firm will earn an economic profit of $_________ If the market price is $7, the firm will have an economic profit of $_________

$120 $0

The amount of revenue produced per unit of an output sold is the _______ revenue

average

Identify the conditions that guarentee consumers will enjoy the lowest prices possible.

-Individual firms are price takers -Every firm produces the exact same product.

To calculate profit, we need to identify three pieces of information

-price -quantity of output -average total cost

Which of the following are reasons for the market of running shoes to be NOT a perfectly competitive market?

-running shoes are not standardized -entry into the market is partially blocked -producers have some control over prices.

Economic profit equals

-total revenue minus explicit and implicit costs of production -total revenue minus economic costs.

Pete's Paper is a small company that produces office paper in a perfectly competitive market. Many other small companies like Pete's Paper produce the exact same type of paper. The market price of office paper is $50 per case.

1-135-35-50 2-165-30-50 3-215-50-50 4-275-60-50 5-350-75-50 -3 -2

The table below shows the total cost of producing tables.

1-30-30 2-50-20 3-80-30 4-120-40 5-200-80

By responding to changes in market price, competitive firms produce more of the products we value most and fewer of the products we value least, thereby achieving _______________

allocative

Average revenue is the:

amount of revenue per unit of a product sold

The demand, the ____________ revenue and the marginal revenue curves for a perfectly competitive firm are the same horizontal line at the market price.

average

A perfectly competitive market involves firms that product identical products. This guarantees:

consumers receive the lowest prices.

As the market price decreases, all else held constant, a profit-maximizing firm can _____________ its production.

decrease

Normal profit is also known as zero _______ profit.

economic

Consider the price elasticity of demand. The demand curve facing a single perfectly competitive firm is perfectly _________

elastic

The level of profit that occurs when total revenue is ___________ to total cost is known as normal profit.

equal

Total revenue minus the ________ and _________ costs of production is economic profit.

explicit implicit

The marginal cost is the:

extra or additional cost associated with the production of an additional unit of output.

When a firm shuts down in the short run, it must still pay the ______ costs.

fixed

In a perfectly competitive market, we assume the products are ______ in the minds of consumers.

identical

As the market price ______ all else held constant, a profit-maximizing firm can afford to expand its production.

increases

When the total revenue is _______ than the total cost, the level of profit that occurs is a loss.

less

The extra or additional revenue associated with the production of an additional unit of output is called the _______ revenue.

marginal

In a perfectly competitive market, a single firm is a price taker, and therefore, can only charge the __________ price.

market

Profit ________ implies that perfectly competitive firms should expand production up ot the point where marginal revenue equals marginal cost.

maximization

The ________ competition model is the most efficient type of market and is characterized by both productive and allocative effieciency.

perfect

A market structure characterized by the interaction of large numbers of buyers and sellers, in which the sellers produce a standardized, or homogeneous, product, is known as:

perfect competition

The demand for a perfectly competitive firm's product is a horizontal line originating at the market _____________

price

the demand for a perfectly competitive firm's product is a horizontal line orginating at the market ____________

price

Firms that take or accept the market price and have no ability to influence that price are known as ___________.

price takers

If an economy is going to produce the goods and services most wanted by society, competitive firms:

produce more of the products we value most and fewer of the products we value least

All firms maximize _______________by producing the quantity of output at which the marginal revenue is equal to the marginal cost

profit

___________ equals the total revenue minus the total cost.

profit

Total ________ equals price times quantity

revenue

profit equals total _________ minus total ________

revenue; cost

For a perfectly competitive firm, the market price is equal to:

-average revenue -marginal revenue -demand

The total revenue divided by the number of units of a product sold is the _________ revenue.

average

In a perfectly competitive market, homogeneity means that firms must charge the same market price for the goods or the services they produce, because there are hundreds of other perfectly good:

substitutes