Microeconomics Chapters 10, 12-14

Barriers to _____ reduce the likelihood or prohibit firms from entering an industry.

entry

In this graph, the first unit of output sold increases total revenue from zero to $131. The second unit sold increases total revenue form $131 to $262 and marginal revenue is again $131. The third unit sold increases total revenue to ____ and marginal revenue is now ____

$393, $131

At a profit maximizing level of output of 25 units, a perfectly competitive firm's marginal revenue is $4, average variable cost is $.30, average total cost is $1.22, and marginal cost is $3.50. The firm's economic profit equals:

$69.50

Which of the following best describes a monopolistic competition?

A relatively large number of sellers producing differentiated products and in which entry or exit from the industry is quite easy.

All of the following statements describe a purely competitive market, except:

A single seller selling only in national market.

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

Average revenue to a seller

A purely competitive firm's demand schedule equals its:

Average-revenue schedule and its marginal-revenue schedule

Which of the following explains why technological progress reduces marginal cost?

Because technological progress increases the productivity of labor.

Which of the following best explains why the firm should produce any unit of output whose marginal revenue exceeds its marginal cost?

Because the firm would gain more in revenue from selling that unit than it would add to its costs by producing it

What term is used to describe declining average total costs with added firm size?

Economies of scale

True or False: A firm within pure competition will maximize its profit when total cost is maximized over total revenue.

False

True or False: A pure monopoly involves a very large number of firms producing a single unique product.

False

Which of the following best explains why a firm would not stop producing if the loss is less than its fixed costs?

Fixed costs are paid regardless of whether something or nothing is produced, and the firm receives enough revenue per-unit to cover AVC and some FC.

The profit-maximizing rule of MR=MC states that:

In the short run, the firm will maximize profit or minimize loss by producing the output at which marginal revenue equals marginal cost.

Which of the following best describes oligopoly?

Involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals.

Which of the following describes the purely competitive industry's supply curve?

It is the sum of the supply curves of all firms and has an important bearing on price.

A firm within pure competition will produce up to the point where marginal revenue equals marginal cost because:

It will experience the lowest possible losses at this point and it will experience the highest possible profits at this point.

Which of the following is a given fact to the individual competitive firm, but a basic determinant of quantity supplied for the entire competitive industry?

Product price

What are the two legal barriers to entry created by the government?

Licenses and Patents

Because of the law of diminishing returns, ___ costs eventually ___ as more units of output are produced.

Marginal, rise

In the short run, a purely competitive firm will maximize profit by producing up to the point where marginal revenue is equal to marginal cost if:

Market price exceeds average variable cost

In pure competition, the demand curve faced by an individual firm graphs as a ______ curve and the market demand in pure competition is graphed as a _____ curve.

Perfectly elastic; downsloping

A firm should produce if:

Price is equal to or greater than minimum average variable cost, meaning that the firm is profitable or that losses are less than fixed costs. Price is equal to or greater than minimum average total cost, meaning that the firm is profitable or is breaking even (earning a normal profit).

There are two ways to determine the level of output at which a firm will realize maximum economic _______ or minimum economic ___________.

Profit; loss

____________ competition is considered to be rare in the real world.

Pure

Match each market structure with the correct number of firms that dominate its industry.

Pure competition=very large number Monopolistic competition=relatively large number Oligopoly=few Monopoly=one

A firm will not increase its product price in a _____ competitive market

Purely

Match each market structure with the correct description of how price control is exerted.

Purely competitive=none, Monopolistic competitive=some, but within narrow limits, Oligopoly=limited by mutual interdependence, Monopoly=considerable control

Match each market structure with the description that best describes the conditions for exit and entry into that industry.

Purely competitive=very easy, no obstacles; Monopolistic competitive=relatively easy; oligopoly=significant obstacles; monopoly=blocked

At the price of P3, output is ______ units and the loss is ______ than the total fixed cost.

Q3; less

Purely competitive firms produce _________ products.

Standardized

Which of the following describes the individual competitive firm's supply curve?

The individual firm's supply curve represents a negligible fraction of total supply and therefore cannot affect price.

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

The point where total revenue covers all costs, including implicit and explicit costs.

Which of the following are true about the profit-maximizing rule of MR=MC?

The rule can be re-stated as P=MC when applied to a purely competitive firm because product price and MR are equal. The rule applies only f producing is preferable to shutting down. The rule is an accurate guide to profit maximization for all firms regardless of their market structure.

Based on the information given in the table, which of the following statements are true of the profit-maximizing rule?

The tenth unit should not be produced as it adds more to marginal cost ($150) than to revenue ($131). Every unit of output up to and including the ninth unit represents greater marginal revenue than marginal cost.

If producing is preferable to shutting down, a profit-seeking monopolist will produce up to the output at which ______.

Up to the output at which marginal revenue=marginal cost

Which of the following are conditions necessary to have pure competition?

Very large number of firms or sellers, free entry and exit, standardized product

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

a normal profit, but a zero economic profit

A firm operating in a purely competitive market is a price taker because it:

cannot change market price, it can only adjust to it

Since a purely competitive firm's average revenue curve equals price, it will also ______ the demand curve.

coincide with

In purely competitive industries, firms can freely:

enter and exit

Firms that operate in a purely competitive industry:

do not differentiate their products

In a perfectly competitive market, price is _______ marginal revenue, therefore, price is ________ marginal cost at the profit-maximizing output.

equal to; equal to

Economists group industries into ____ distinct market structures.

four

A firm should not produce a unit of output when the marginal cost is _____ than its marginal revenue

greater

Whenever price is _____ than average variable costs but is ____ than average total costs, the firm can pay part, but not all its _____ costs by producing.

greater; less; fixed

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

horizontal

The demand curve of a purely competitive firm is a ______________ line (perfectly elastic).

horizontal

Quantity supplied increases as price ___________ and economic profit is usually higher at higher product _______ and output.

increases; prices

Government creates ___ barriers to entry.

legal

In the initial stages of production, where output is relatively ______, marginal _______ will usually, but not always, exceed marginal _________

low; revenue; cost

If price is ___ than a firm's minimum average ___ cost, the firm will not operate.

lower; variable

A firm would not produce a unit of output where _____

marginal cost exceeds marginal revenue

For the firm, at a price of $131, and an output of 7 units:

marginal revenue (MR) exceeds marginal costs (MC) and the firm should expand its output

_________ revenue is the additional revenue that an additional unit of _______ would add to total revenue.

marginal; output

Market models are distinguished based upon differences in:

non-price competition, type of product, the number of firms, and the conditions of entry

In the short run, a purely competitive firm can maximize its profit (or minimize its loss) by adjusting its _______.

output

In a purely competitive industry, buyers view the products of firms B, C, D, and E as _______ for the product of firm A.

perfect substitutes

A firm's total revenue is calculated as ________ times quantity produced.

price

In pure competition, __________ and marginal revenue are equal.

price

Which of the following improves as production increases till the profit-maximizing level of output?

price-marginal cost relationship

In pure competition, to calculate economic profit, we first calculate the difference between product __________ or _______________ revenue and average total cost and then multiply it by output.

price; marginal

Profit in a purely competitive market is maximized when ______ equals ______ equals ______.

price; marginal revenue; marginal cost

The market demand curve for a purely competitive industry:

slopes downward

A purely competitive firm will maximize its profits by producing up to the point where:

the vertical distance between the total revenue and total cost curves is the greatest.

________ minus ________ gives economic profit.

total revenue; total cost

When price is equal to a firm's lowest average variable cost, the firm will be able to cover its _________ variable cost and its loss will equal its total _______ cost.

total; fixed

A wage increase would increase marginal costs and shift the supply curve:

upward, to the left

A purely competitive firm's total revenue (TR) is a straight line that slopes _______ and to the ________.

upward; right

When a firm produces a specific output level at a higher cost than the necessary cost for that level of output, it is called:

x-inefficiency

In pure competition, economic profit is calculated as ____________ or ______________.

(marginal revenue - average total cost) quantity or (price - average total cost) quantity

Confronted with the market price of its product, a purely competitive producer will ask which three questions?

1. Should we produce this product? 2. If we produce this product, in what amount? 3. What economic profit or loss will we realize i we produce this product?

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

6 units

Which of the following describes an industry that would best fit the oligopolistic market structure?

Airlines

Which of the following best describes pure competition?

An industry involving a very large number of firms producing identical products and in which new firms can enter or exit the industry very easily.

Which of the following statements are true of perfectly competitive firms?

Quantity supplied increases in direct response to an increase in product price and desire to maximize profit. A purely competitive firm must get higher prices to motivate it to produce more output. At greater levels of output, the higher marginal costs equal the product price and marginal revenue and profit is maximized.

A purely competitive market is a price _______.

Taker

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

Technology and prices of variable inputs

When will a firm earn an economic profit?

When price is greater than average total cost

In a purely competitive market, at profit-maximization or loss-minimization, marginal ______ is equal to ________.

cost; price, revenue; price, and revenue; marginal cost

For each purely competitive firm, the demand curve is perfectly __________ at the equilibrium price.

elastic

In purely competitive markets, an individual firm does not exert control over ________.

product price, the total supply of a product, the firm's demand

Which of the following describes an industry that would best fit the monopolistically competitive market structure?

retail trade

Match each market structure with the correct type of product that it produces.

standardized product=purely competitive, differentiated product=monopolistically competitive, standardized or differentiated product=oligopoly, unique; no close substitutes=monopoly

The portion of a firm's marginal cost curve that lies above its average variable cost is the firm's short-run ____________ curve.

supply