Macro chapter 10

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

an economic profit of ABGH.

For a purely competitive seller, price equals

average revenue, marginal revenue, total revenue divided by output

The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.

downsloping, perfectly elastic

The MR = MC rule can be restated for a purely competitive seller as P = MC because

each additional unit of output adds exactly its price to total revenue.

Price is constant to the individual firm selling in a purely competitive market because

each seller supplies a negligible fraction of total supply.

The firm should produce in the short run as long as the price

exceeds the average variable cost.

Economists group industries into ____ distinct market structures

four

The quantity of a product supplied by a firm in pure competition should _____ as long as price rises.

increase

The marginal revenue curve of a purely competitive firm

is horizontal at the market price

This graph illustrates that a firm can minimize its losses by producing where ______

price exceeds minimum average variable cost but is less than average total cost

In the short run, a purely competitive seller will shut down if

price is less than average variable cost at all outputs.

A purely competitive seller is

price taker

On a per-unit basis, economic profit can be determined as the difference between

product price and average total cost.

Changes in (Enter one word) and changes in prices of variable inputs alter costs and shift the marginal cost or short run supply curve.

technology

Refer to the accompanying diagram. At the profit-maximizing output, total revenue will be

0AHE.

According to the accompanying diagram, to maximize profit or minimize losses, this firm will produce

E units at price A.

Based on the information in this chart, at which price will a firm shut down?

P1

Total revenue equals ______ times ______

Price * Quantity

Which of the following is a method of calculating economic profit in pure competition?

Price minus average total cost multiplied by quantity

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

Price must be at least equal to average total cost.

Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location?

Prices of variable inputs & Technology

Which of the following are considered to be the four basic market structures?

Pure competition Pure monopoly Oligopoly Monopolistic competition

______ is relatively rare in the real world, although this market model is highly ______ to several industries.

Pure competition; relevant

Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic?

The firm does not need to lower its price to increase its sales volume. The firm cannot obtain a higher price by restricting its output.

In a perfectly competitive market, the demand curve for an individual firm is perfectly at the market price.

elastic

For a purely competitive firm, total revenue

has all of these characteristics.

In the short run, a purely competitive seller will shut down if product price

is less than AVC.

In pure competition, to calculate economic profit, we first calculate the difference between and average total cost and then multiply it by output. (Type only one word in blank.

price

The MR = MC rule is known as the:

profit maximizing rule

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

profit maximizing rule

An industry comprising a very large number of sellers producing a standardized product is known as

pure competition

competition is considered to be rare in the real world.

pure or perfect

In a purely competitive industry, at the profit-maximizing or loss-minimizing level of output, marginal ___ is equal to ___

revenue; marginal cost revenue; price cost; price

When an industry is purely competitive, price can be substituted for marginal revenue in the MR = MC rule because

the demand curve is perfectly elastic and the price is constant regardless of the quantity demanded, so the MR is constant and equal to the price

Multiplying product price by output reveals which of the following?

total revenue

If price is below a firm's minimum average cost, the firm will not operate. (Insert only one word in the blank.)

variable

A firm should always stop producing if its average ______ cost is ______ price.

variable; greater than

In the short run, a purely competitive firm will earn a normal profit when

P = ATC

A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which:

TR exceeds TC by as much as possible.

Which of the following best describes the economic break-even point?

The point where total revenue covers all costs, but there is no economic profit.

In a purely competitive market, price per unit to a buyer equals

average revenue to a seller

The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because when this is true

last unit produced adds more to revenue than to costs, and its production must necessarily increase profits or reduce losses

When a firm is maximizing profit, it will necessarily be

maximizing the difference between total revenue and total cost

An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of

monopolistic competition

From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit.

normal

The short-run supply curve for a purely competitive industry can be found by

summing horizontally the segments of the MC curves lying above the AVC curve for all firms.

A purely competitive firm is a price (Enter one word)

taker

Firms seek to maximize

total profit

In this table, at a price of $81.00, the loss-minimizing level of output is _____.

6 units

Which of the following explains why a purely competitive firm is a price taker?

A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market

In this table, at a price of $71, the profit-maximizing or loss-minimizing level of output is ______.

0 units

Consider a profit-maximizing firm in a competitive industry. Under which of the following situations would the firm choose to produce where MR = MC?

-P > minimum ATC. -Minimum AVC < P < minimum ATC.

According to the accompanying diagram, at the profit-maximizing output, total variable cost is equal to

0CFE

True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output

False Reason: According to the supply schedule of the competitive firm, quantity supplied and economic profit both increase as prices rise.