Micro-Econ Chapter 13

Which of the following is NOT one of four define characteristics of a competitive market?

They are only a few sellers

In a perfectly competitive market, which of the following participants have full information?

both buyers and sellers

In perfectly competitive markets,

buyers and sellers face very low transaction costs

in a perfectly competitive market, producers focus on the quantity because they

cannot influence the market price

When P is greater than minimum AVC, the firm should

continue to produce

In real life, goods are

differentiated by quality, brand, or other characteristics

fixed costs are irrelevant in the decision about whether to shut down production in the short run because fixed costs

do not affect, and are not affected by, the quantity the firm produces

In a perfectly competitive market, firms are able to

easily enter and exit the market

if firms have differing costs, the more efficient firms, with lower ATC, are able to earn positive _____ profit

economic

the profit maximizing quantity is the one at which the marginal revenue of the last unit was

exactly equal to the marginal cost

There are no _______ in a perfectly competitive market; everyone knows exactly what they are trading

information asymmetries

over time, average total cost may change because

innovative firms use new technologies that enable them to produce goods at a lower cost

When goods are standardized, they are

interchangeable

The marginal cost curve

intersects both average variable and average total cost curves at their lowest points

Total revenue is

Price x Quantity

in real life, few markets meet all the assumptions of _________ _______

perfect competition

when a firm experience short run losses, firms will continue exiting the market causing the price to rise until economic losses are reduced to _______

zero

every firm in a competitive market can sell as much as it wants because

- firms will not want to produce an infinite quantity - each firm is small relative to the size of the whole market

in the _________ run firms, in a perfectly competitive market earn zero ______ profit

- long - economic

When deciding whether to produce in the short run, the firm should consider whether price is greater than average _____ cost; but when deciding whether to produce in the long run, the firm should consider whether price is greater than average _____ cost

- variable - total

If price falls below ATC, a firm may still be making _____ profits but could have negative _____ profits

-accounting -economic

as the market price falls, it intersects the marginal ______ curve at a ________ output level

-cost -lower

Free entry to a market can help drive

-innovation -cost cutting -quality improvements

a firm should keep producing for as long as marginal ______ is more than marginal ________

-revenue -cost

as long as average _______ or the market price remains above the firm's average _______ cost at the level of output it produces, the firm will be making profits

-revenue -total

as new firms enter a market, the short run market _____ curve increases. The new market equilibrium moves to a _______- market price and _______ market quantity

-supply -lower - higher

The firm should produce in the short run if ______; but when deciding whether to produce in the long run, the firm should only produce when _______

-the market price is higher than AVC -higher than ATC

the four defining characteristics of a competitive market are that

1. buyers and sellers can't affect prices - the going price is the going price 2. goods are standardized 3. buyers and sellers have full information 4. there are no transaction costs

The process of market entry and exit leads us to several conclusions:

1. firms earn zero economic profits 2. firms operate at an efficient scale 3. supply is perfectly elastic (in theory)

a firm would want to enter the market if it sets it could produce at a level of

ATC that is below the market price

In the long run, a firm should exit if

P is less than minimum ATC

a firm should shut down when

P less than minimum AVC

perfectly competitive firms operate at an efficient scale because

P= ATC at the minimum of ATC

When losses occur, firms will continue exiting the market, causing the price to rise until

P= ATC where economic profits are zero

average revenue's equation is

Total revenue divided by the quantity sold

Marginal revenue is the additional revenue generate by selling

an additional unit of a good

Economists use the idea of perfectly competitive markets to refer to

an idealized model of market competition in which all four characteristics hold true

in a perfectly competitive market, producers can sell as much as they want without affecting the market price because they

are so small relative to the market

________ revenue is total revenue divided by the quantity sold

average

when there are economic profits in a market

firms will enter the market to take advantage of the profit-making opportunity

The difference between a firm's variable and total costs is its _____ costs

fixed

for a boat building enterprise, ______ costs might include interest payments on a loan taken out to purchase equipment and lease of a place in which to set up the equipment

fixed

in a perfectly competitive market in the short run, an increase in demand causes equilibrium price to

increase and the equilibrium quantity to increase

the key difference between supply in the short run and supply in the long run, is that we assume that firms are able to enter and exit the market only in the _____ run

long

If the market price drops below the bottom of the AVC curve, it would make sense for the firm to cease production in the short run because the

loss will be greater than the fixed costs

For a firm in a competitive market, _______ revenue is equal to the price of the good

marginal

a firm's short run supply curve is the same as its ______ cost curve for all points above minimum average variable cost

marginal

The ability to noticeably affect market prices implies

market power

in a perfectly competitive market ,

market price is the same thing as the firm's marginal revenue and average revenue

the short run market supply curve is upward sloping because each firm supplies

more as the price rises

When a market has free entry and exit, there will likely be

more firms competing

Suppose Meg's Marine is producing 14 boats and is considering whether nor not to increase its output to 15 boats. At an output of 14 boats, the marginal revenue is $1,000 and the marginal cost is $1200. in this case, they should

not increase production because marginal profit decreases

every firm in a competitive market can sell as much as it wants at the market price because any individual firm's choice about the quantity to produce has such a small effect on the total quantity supplied to the market, that the change in market ______ is essentially zero

price

marginal revenue is a horizontal line that equals ______

price

In a perfectly competitive market in the long run, because entry and exit will increase or decrease the market supply, until the price returns to the zero-profit eqm price

price is the same at any quantity

For any firm selling one product, average revenue is equal to the

price of the good

marginal ______ equals marginal revenue minus marginal cost

profit

if a frim produces any more than the output level where marginal cost equals marginal revenue its

profits would go down

the only choice that a perfectly competitive firm can make to affect its profits, is to decide the

quantity to produce

in the real world, firms

rarely have the same cost structure

When P is less than minimum AVC, the firm should

shut down

Many natural resources can be considered _______ goods

standardized

if the market price is lower than ATC but higher than AVC, the firm should

still continue to produce in the short run

In the long run, when firms in a perfectly competitive market earn zero economic profit, they

still have enough revenue to cover their opportunity cost

The short run market supply curve is

sum of all firms' MC curves above the minimum AVC

a cost that has already been incurred and cannot be refunded or recovered is a ______ cost

sunk

as new firms enter a market,

supply increase and demand stays constant.

as more firms enter the market,

the total quantity offered for sale at any given price increases

In a perfectly competitive market,

there are many buyers and sellers that no one buyer or seller can set their own price

Gut Bombs sandwich shop pays 5000 a month in rent space and equipment. It pays each of it 10 workers 2500 a month and spends 5000 on food. there are no other production costs. Gus Bombs sandwich shop usually sells 3500 sandwiches per month for 10 each

they will have a profit of zero

a perfectly competitive firm can only decide the quantity of output to produce because they are

too small to influence the market price

a firms efficient scale is the quantity that minimizes average ____ cost

total

In the long run, all costs become

variable

The decision about whether to shut down production in the short run depends entirely on the ______ costs of production

variable

when a firm shuts down production, it produces zero output, and avoids incurring any _____ costs

variable

in a perfectly competitive market, producers are able to sell as much as they want without

worrying about whether they will cause a price change, or if they will find buyers