Econ Chapter 14

Which of the following industries is most likely to exhibit the characteristic of free entry?

tennis shoes

marginal revenue

the change in total revenue from an additional unit sold

A firm in a competitive market has the following cost structure: If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?

3 units

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

will be infinite.

Table 14-1: If the firm doubles its output from 3 to 6 units, total revenue will

increase by exactly $15.

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should

increase its output.

Figure 14-1: Suppose that a firm in a competitive market has the following cost curves: If the market price is $6.30, the firm will earn

zero economic profits in the short run.

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

$12.

Figure 14-1: Suppose that a firm in a competitive market has the following cost curves: The firm's short-run supply curve is its marginal cost curve above

$4.50.

Table 14-1: Over which range of output is average revenue equal to price?

Average revenue is equal to price over the entire range of output.

Table 14-1: Over what range of output is marginal revenue declining?

Marginal revenue is constant over the entire range of output.

In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

New firms will likely enter this market to capture some of the economic profits.

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

The firm will earn zero profits in both the short run and long run.

In a competitive market, the actions of any single buyer or seller will

have a negligible impact on the market price.

sunk cost

a cost that has already been committed and cannot be recovered

competitive market

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

Figure 14-1: Suppose that a firm in a competitive market has the following cost curves: The firm will earn a positive economic profit in the short run if the market price is

above $6.30.

For an individual firm operating in a competitive market, marginal revenue equals

average revenue and the price for all levels of output.

Who is a price taker in a competitive market?

both buyers and sellers

When firms are said to be price takers, it implies that if a firm raises its price,

buyers will go elsewhere.

A seller in a competitive market

can sell all he wants at the going price, so he has little reason to charge less, will lose all his customers to other sellers if he raises his price, considers the market price to be a "take it or leave it" price.

A firm that has little ability to influence market prices operates in a

competitive market.

Table 14-1: The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

competitive market.

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

corn and satellite radio

For any competitive market, the supply curve is closely related to the

firms' costs of production in that market.

A firm has market power if it can

influence the market price of the good it sells.

A firm will shut down in the short run if, for all positive levels of output,

its losses exceed its fixed costs, its total revenue is less than its variable costs, the price of its product is less than its average variable cost.

Figure 14-1: Suppose that a firm in a competitive market has the following cost curves: The firm should shut down if the market price is

less than $4.50.

Figure 14-1: Suppose that a firm in a competitive market has the following cost curves: The firm will earn a negative economic profit but remain in business in the short run if the market price is

less than $6.30 but more than $4.50.

Figure 14-1: Suppose that a firm in a competitive market has the following cost curves: If the market price is $4.00, the firm will earn

negative economic profits and shut down.

Figure 14-1: Suppose that a firm in a competitive market has the following cost curves: If the market price falls below $4.50, the firm will earn

negative economic profits in the short run and shut down.

Figure 14-1: Suppose that a firm in a competitive market has the following cost curves: If the market price is $5.00, the firm will earn

negative economic profits in the short run but remain in business.

Figure 14-1: Suppose that a firm in a competitive market has the following cost curves: If the market price rises above $6.30, the firm will earn

positive economic profits in the short run.

A key characteristic of a competitive market is that

producers sell nearly identical products.

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its

quantity of output is higher than it was previously, average total cost is higher than it was previously, marginal revenue is higher than it was previously.

average revenue

total revenue divided by the quantity sold