Econ Ch 13

random facts start now....

(see below)

Firms exit a competitive market when they incur an economic loss. In the long run, this exit means that the economic losses of the surviving firms decrease until they equal zero.

...

If firms in a perfectly competitive market are earning an economic profit, then new firms enter the market and the equilibrium profit of the initial firms decreases.

...

In a perfectly competitive market, if firms are earning an economic profit, the economic profit attracts entry by more firms, which lowers the price.

...

One part of a perfectly competitive trout farm's supply curve is its marginal cost curve above the shutdown point.

...

The lowest price for which a company might remain open is the point where the MC equals the AVC (and the point where these two lines intersect) - I think this is right....

...

Requirement of perfect competition is three things - what are they?

1) many firms selling identical products to many buyers 2) no restrictions on entry into/out of market and established firms have no advantage over new firms 3) sellers and buyers are well informed about prices

If the market supply curve and market demand curve for a good intersect at 600,00 units and there are 10,000 identical firms in the market, then each firm is producing how many units?

60 units

When a firm shuts down, it incurs a loss equal to its total fixed cost.

A firm will shut down it price is less than minimum average variable cost.

A perfectly competitive firm earns an economic profit in the short run if price is ________than ________ cost.

A perfectly competitive firm earns an economic profit in the short run if price is greater than average total cost.

A perfectly competitive firm is a price taker because why?

A perfectly competitive firm is a price taker because many other firms produce the same product

A perfectly competitive firm maximizes its profit by producing at what point?

A perfectly competitive firm maximizes its profit by producing at the point where marginal revenue is equal to marginal cost.

As a result of firms leaving the perfectly competitive frozen yogurt market in the 1990's, the market supply curve shifted ________.

As a result of firms leaving the perfectly competitive frozen yogurt market in the 1990's, the market supply curve shifted LEFTWARD.

As output increases, total revenue and total cost increase.

Because of decreasing marginal returns, total cost eventually increases faster than total revenue.

True or False? A perfectly competitive firm earns an economic profit if price equals average total cost.

FALSE

True or False? A perfectly competitive firm has an economic loss if price is less than the marginal cost.

FALSE

True or False? In a perfectly competitive industry, a firm's economic profit is equal to price minus marginal revenue multiplied by quantity.

FALSE

True or False? Market supply in a perfectly competitive market is perfectly elastic at all times.

FALSE

For a perfectly competitive firm the marginal revenue curve is the same as what?

For a perfectly competitive firm the marginal revenue curve is the same as the demand curve.

If a perfectly competitive firm is maximizing its profit and earning an economic profit, what three things are happening?

If a perfectly competitive firm is maximizing its profit and earning an economic profit, what three things are happening? 1) price equals marginal revenue 2) marginal revenue equals marginal cost 3) price is greater than average total cost

If firms in a perfectly competitive market have economic losses, then as time passes firms _____ and the market ______.

If firms in a perfectly competitive market have economic losses, then as time passes firms EXIT and the market SUPPLY CURVE SHIFTS LEFTWARD.

If the market price is lower than a perfectly competitive firm's average TOTAL cost the firm will do what?

If the market price is lower than a perfectly competitive firm's average TOTAL cost the firm will continue to produce if the price exceeds the average VARIABLE cost.

If the price of dry cleaning a shirt is $20/shirt the firm will dry clean 35 shirts an hour which is the point where the MC curve crosses the price line.

If the price of dry cleaning a shirt is $10/shirt the firm will dry clean 30 shirts an hour which is the point where the MC curve crosses the price line.

In the long run, a firm in a perfectly competitive market will earn zero economic profit, that is, it will earn a _______ profit.

In the long run, a firm in a perfectly competitive market will earn zero economic profit, that is, it will earn a NORMAL profit.

In the long run, new firms enter a perfectly competitive market when what happens?

In the long run, new firms enter a perfectly competitive market when economic profits are greater than zero.

True or False? Perfect competition is efficient because it results in the efficient quantity being produced.

TRUE

True or False? The market supply curve in the short run shows the quantity supplied at each price by a fixed number of firms.

TRUE

A perfectly competitive firm's supply curve is its marginal cost curve above the minimum average variable cost.

The demand curve faced by a perfectly competitive firm is horizontal.

The market for watermelons in Alabama is perfectly competitive. A watermelon producer earning a normal profit could earn an economic profit if the average cost of selling watermelons does what?

The market for watermelons in Alabama is perfectly competitive. A watermelon producer earning a normal profit could earn an economic profit if the average cost of selling watermelons DECREASES.

A perfectly competitive firm faces a perfectly elastic demand

When a perfectly competitive firm maximizes profit, marginal revenue equals marginal cost.

price taker

a firm that cannot influence the price of the good or service taht it produces firms in perfect competition are price takers

monopoly

a market for a good or service that has no close substitutes and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms (ex: DeBeers used to have a monopoly for diamonds)

monopolistic competition

a market in which a large number of firms compete by making similar but slightly different products (ex: blue jeans, tennis shoes)

oligopoly

a market in which a small number of firms compete (ex: Coke and Pepsi)

perfect competition

a market in which there are many firms, each selling an identical product; many buyers; no restrictions on the entry of new firms into the industry; no advantage to established firms; and buyers and sellers are well informed about prices

a perfectly competitive firm's short-run supply curve is...

a perfectly competitive firm's short-run supply curve is its average total cost above minimum average variable cost

marginal revenue

the change in total revenue that results from a one-unit increase in the quantity sold

Normal profit

the payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm