Topic 9: Perfect Competition
A firm sustains a loss if
TR < TC
Which of the following markets is most likely to be perfectly competitive?
The market for mushrooms
Marginal revenue is the:
additional revenue associated with the sale of an additional unit of output.
The total revenue divided by the number of units of a product sold is the _____ revenue.
average
For a perfectly competitive firm, the market price is equal to:
average revenue demand marginal revenue
When a firm shuts down in the short run, it must still pay the _____ costs.
fixed
All firms maximize _____ by producing the quantity of output at which the marginal revenue is equal to the marginal cost.
profit
In a perfectly competitive market, homogeneity means that firms must charge the market price for the goods or the services they produce, because:
the market is competitive. there are hundreds of other perfectly good substitutes.
Normal profit is also known as zero _____ profit.
economic
Total revenue minus the _____ and _____ costs of production is economic profit.
explicit; implicit
For each of the markets listed below, determine whether the market can reasonably be described as perfectly competitive. a. Breakfast cereal b. Sugar c. Automobiles d. Hass avocados e. Cable televison
a. not perfectly competitive b. perfectly competitive c. not perfectly competitive d. perfectly competitive e. not perfectly competitive
The perfectly competitive model is the most efficient type of market and is characterized by both productive and _____ efficiency.
allocative
A market structure characterized by the interaction of large numbers of buyers and sellers, in which the sellers produce a standardized, or homogeneous, product, is known as:
perfect competition
Firms that take or accept the market price and have no ability to influence that price are known as _____.
price takers
Firms that take or accept the market price and have no ability to influence that price are known as price _____.
takers
Bobby decides to sell lemonade on a hot summer day. If Bobby sells 20 glasses of lemonade for $0.20 per cup, and his average total cost is $0.17, what are Bobby's economic profits for the day?
$0.60
Consider the graph. If the market price is $11, this firm will earn an economic profit of $___. If the market price is $7, this firm will earn an economic profit of $___.
$120; $0 *Profit equals price minus average total cost multiplied by the output level (so, $3 x 40 quantity = $120) MC = MR...
The demand for a perfectly competitive firm's product is a horizontal line originating at the _____.
market price
The price of a good times the number of units sold gives us _____.
total revenue
Economic profit equals
total revenue minus economic costs. total revenue minus explicit and implicit costs of production.
A company can break even and meet operating costs without a loss when is earns _____ economic profit.
zero
The table below shows the total cost of producing tables. Using the information fill in the blanks for marginal cost. Output (tables); Total Cost (dollars); Marginal Cost (dollars) 0; $0; --- 1; 30; 2; 50; 3; 80; 4; 120; 5; 200;
Output (tables); Total Cost (dollars); Marginal Cost (dollars) 0; $0; --- 1; 30; 30 2; 50; 20 3; 80; 30 4; 120; 40 5; 200; 80
Office Paper (cases); Total Cost (dollars); Marginal Cost (dollars); Marginal Revenue (dollars) 0; $100; ---; --- 1; 135; 35; 50 2; 165; 30; 50 3; 215; 50; 50 4; 275; 60; 50 5; 350; 75; 50 To maximize profits at the market price of $50 per case, Pete's Paper should produce 3 cases of office paper each day. Suppose a decrease in the market demand for office paper causes the price of office paper to decrease to $40 per case. To maximize profits, Pete's Paper should now produce 2 cases of office paper per day.
Pete's Paper is a small company that produces office paper in a perfectly competitive market. Many other small companies like Pete's Paper produce the exact same type of paper. The market price of office paper is $50 per case. The schedule below shows daily costs for Pete's Paper. Complete the schedule. Office Paper (cases); Total Cost (dollars); Marginal Cost (dollars); Marginal Revenue (dollars) 0; $100; ---; --- 1; 135; 2; 165; 3; 215; 4; 275; 5; 350; To maximize profits at the market price of $50 per case, Pete's Paper should produce ___ cases of office paper each day. Suppose a decrease in the market demand for office paper causes the price of office paper to decrease to $40 per case. To maximize profits, Pete's Paper should now produce ___ cases of office paper per day.
A perfectly competitive market involves firms that produce identical products. This guarantees:
consumers receive the lowest prices.
In the long run,
firms earn a normal profit.
In a constant-cost industry, the long-run supply curve is a _____ line originating at the market price that generates _____ profits for the firms in the industry.
flat; normal
In a perfectly competitive market, we assume the products are _____ in the minds of consumers.
identical
Extra or additional revenue associated with the production of an additional unit of output is the _____.
marginal revenue
A perfectly competitive firm should produce output until the point where:
marginal revenue equals marginal cost.
In a perfectly competitive market, a single firm is a price taker, and therefore, can only charge the _____ price.
market
Firms that take or accept the market price and have no ability to influence that price are _____ takers.
price
In the short run, as the _____ rises, so does the level of output supplied.
price
All firms maximize profits by producing the quantity of output at which the marginal _____ is equal to the marginal _____.
revenue; cost
For a firm, profit equals total _____ minus total _____.
revenue; cost
Profit equals (average _____ minus average total _____) multiplied by output.
revenue; cost