Economics Midterm 2: Firms in the Competitive Market

The price of a seller's product in perfect competition is determined by

Market demand and market supply

If, in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

Some existing firms will exit the industry

If a typical firm in a perfectly competitive industry is incurring losses, then

Some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profit for all firms

In the long run, a perfectly competitive market will

Supply whatever amount consumer demand at a price determined by the minimum point on the typical firm's average total cost curve

In the short run, a firm that is operating at a loss has two options. These options are

TO shut down temporarily or continue to produce

If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm

added more to total revenue than it added to total cost

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

$25

If the market price is $25, the average revenue of selling five units is

$25

A firms total profit can be calculated by...

Average profit per unit times quantity sold Total revenue minus total cost (price minus average total cost)times quantity sold

A perfectly competitive market is in long-run equilibrium. At present there are 100 identical firms each producing 5,000 units of output. The prevailing market price is $20. Assume that each firm faces increasing marginal cost. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24. Which of the following describes the effect of this increase in demand on a typical firm in the industry?

In the short run, the typical firm increases its output and makes an above normal profit

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximize its profit?

Increase output

A firm would decide to shut down if its production resulted in

MR < AVC

Assume the market for organic produce sold at farmers' markets is perfectly competitive. All else equal, as more farmers choose to produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?

The equilibrium price is likely to decrease and profits are likely to decrease

Which of the following is a characteristic of a firm in a perfectly competitive market?

The firm can sell as much as it wants without having to lower its price

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

The market demand curve is downward sloping; the firm's demand curve is a horizontal line

Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

The short run market supply curve shifts to the right, causing price to fall and total market output to increase

Assume the market for organically-grown produce is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell organic produce in this market,

The supply curve will shift to the left and the equilibrium price will increase

What is not a characteristic of a perfectly competitive market structure?

There are restrictions on exit of firms

If a perfectly competitive firm's price is above its average total cost, the firm

earn a profit

In long-run perfectly competitive equilibrium

firms DO NOT earn an economic profit

A perfectly competitive firm's supply curve is its...

marginal cost curve above its minimum average variable cost

At the profit-maximizing level of output for a perfectly competitive firm,

price equals marginal cost

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

profit of $14,000

In a graph that illustrates a perfectly competitive firm, marginal revenue is

the same as the firm's demand curve

In a perfectly competitive industry, in the long-run equilibrium,

the typical firm earns zero profit