Lesson 6 Concepts

In long-run competitive equilibrium, a firm that owns factors of production will have an -- economic profit

$0 and accounting profit > $0.

If any of the assumptions of perfect competition are violated

-- there may still be enough competition in the industry to make the model of perfect competition usable.

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

Average fixed cost curve

In a constant-cost industry, price always equals

Long Run Marginal Cost (LRMC) and minimum Long Run Average Total Cost (LRATC)

If current output is less than the profit-maximizing output, which must be true?

Marginal revenue is greater than marginal cost.

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision

Output decreases because the marginal cost curve shifts upward.

Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as

P = MC.

Suppose a firm has unavoidable fixed costs of $500,000 per year, and it decides to shut down. What is the firm's producer surplus?--

PS is positive in this case, but we cannot determine the value based on the given information

At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?

They must have the same slope.

What happens in a perfectly competitive industry when economic profit is greater than zero? Select one: a. Existing firms may get larger. b. New firms may enter the industry. c. Firms may move along their LRAC curves to new outputs. d. There may be pressure on prices to fall.

e. All of the above may occur.

In the short run, a perfectly competitive profit maximizing firm that has not shut down

is operating on the upward-sloping portion of its AVC curve

At the profit-maximizing level of output, marginal profit

is zero

If a competitive firm's marginal cost curve is U-shaped then

its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average variable cost curve

In the short run, a perfectly competitive firm earning positive economic profit is

on the upward-sloping portion of its ATC.

Marginal profit is negative when:

output exceeds the profit-maximizing level

Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is and producer surplus equals Select one

perfectly elastic, zero

The demand curve facing a perfectly competitive firm is

perfectly horizontal

If a competitive firm's marginal costs always increase with output, then at the profit maximizing output level, producer surplus is

positive because price exceeds average total costs

One practical implication of a kinked market supply curve is that

the market supply elasticity for a price increase may be different than the market supply elasticity for a price decrease at the kink point.

When the Total Revenue and Total Cost curves have the same slope, Select one

they are the furthest from each other