Econ ch. 8

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its

allocative efficiency

For a constant cost industry in a purely competitive market structure, whenever there is an increase in market demand and price, then the supply curve

Shifts to the right with new firms' entry and stops at the point where the new long-run equilibrium intersects at the same market price as before.

In the short run, a strawberry farm operating in a perfectly competitive market would produce strawberries at a profit if...

They sell each package of strawberries for $5, and the average variable cost is $4.75.

If the price that a firm charges is higher than its _______________ cost of production for that quantity produced, then the firm will earn profits.

average

If the price that a firm charges is lower than its __________ of production, the firm will suffer losses.

average cost

In the ______________, the perfectly competitive firm will react to losses by ______________________.

long run; reducing production or shutting down

In economics, the term "shutdown point" refers to the point where the

marginal cost curve crosses the average variable cost curve.

If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the __________ and the vertical axis will represent ________________________________.

quantity produced; both total revenue and total costs, measured in dollars.

Firms operating in a market situation that creates ______________________, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

The term _______________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ____________________.

supply curve

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce

In order to produce 100 oatmeal cookies, GoodieCookieCo incurs an average total cost of $0.25 per cookie. The company's marginal cost is constant at $0.10 for all oatmeal cookies produced. The total cost to produce 50 oatmeal cookies is

$20

____________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

A perfectly competitive industry is a

hypothetical extreme.

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

keep the business open in the short-run, but plan to go out of business in the long-run.