ECON: Ch.10
Confronted with the market price of its product, the competitive producer will ask three questions:
1) Should we produce this product? 2) If so, in what amount? 3) What economic profit (or loss) will we realize?
At a price of $131 and 7 units of output: A)MR exceeds MC, and the firm should expand its output B)Total revenue is less than total cost C)AVC exceeds ATC D)The firm would earn only a normal profit
A
The total-revenue curve for a purely competitive firm is ____
A straight line
Total revenue from the sale of a product divided by the quantity of the product sold (demanded)
Average revenue
The firm's demand schedule is also its ____ schedule
Average-revenue
An output at which a firm makes a normal profit but not an economic profit
Break-even point
In maximizing profits at 9 units of output, this firm is adhering to which of the following decision rules? A)Produce where MR exceeds MC by the greatest amount B)Produce where P exceeds ATC by the greatest amount C)Produce where total revenue exceeds total cost by the greatest amount D)Produce where average fixed costs are zero
C
Suppose price declined from $131 to $100. This firm's: A)Marginal-cost curve would shift downward. B)Economic profit would fall to zero. C)Profit-maximizing output would decline. D)Total cost would fall by more than its total revenue
C
There are two ways to determine the level of output at which a competitive firm will realize maximum profit or minimum loss:
Comparing total revenue and total cost, comparing marginal revenue and marginal cost
Curve MR is horizontal because: A)Product price falls as output increases B)The law of diminishing marginal utility is at work C)The market demand for this product is perfectly elastic D)The firm is a price taker
D
Marginal revenue and average revenue for a purely competitive firm coincide with the firm's ____
Demand curve
In a purely competitive market, individual firms ____ exert control over product price
Do not
In pure competition, marginal revenue and price are ____
Equal
Because of the law of diminishing returns, marginal costs ____ as more units of output are produced
Eventually rise
Competitive firms choose to operate rather than shut down whenever price is ____ than average variable cost but ____ than average total cost because, in those situations, revenues will ____ variable costs
Greater, less, always exceed
An entire industry (all firms producing a particular product) can affect price by changing ____
Industry output
A competitive firm shuts down production at least temporarily if price is ____ than minimum average variable cost
Less
The change in total revenue that results from selling one more unit of output
Marginal revenue
In the short run, the firm will maximize profit or minimize loss by producing the output at which ____
Marginal revenue equals marginal cost (MR=MC Rule)
The characteristics of an industry that define the likely behavior of performance of its firms. The primary characteristics are the number of firms in the industry, whether they are selling differentiated product, the easy of entry, and how much control firm have over output prices
Market structure
____ in a competitive industry is the horizontal sum of the individual supply curves of all of the firms in the industry
Market supply
Pure competition assumes that firms and resources are ____ among different industries
Mobile
A relatively large number of sellers producing differentiated products
Monopolistic competition
The demand schedule faced by the individual firm in a purely competitive industry is ____ at the market price
Perfectly elastic
When producing is preferable to shutting down, the competitive firm that wants to maximize its profit or minimize its loss should produce at that point where ____
Price equals marginal cost
A seller or buyer that is unable to affect the price at which a product or resource sells by changing the amount it sells or buys
Price taker
The pure monopolist produces a single unique product, so ____ is not an issue
Product differentiation
____ involves a very large number of firms producing a standardized product
Pure competition
A market structure in which one firm is the sole seller of a product or service
Pure monopoly
A competitive firm's ____ is the portion of its marginal cost (MC) curve that lies above its average variable cost (AVC) curve
Short-run supply curve
It tells us the amount of output the firm will supply at each price in a series of prices
Short-run supply curve
If the market price is below the minimum average variable cost, the firm will minimize its losses by ____
Shutting down
The individual competitive firm's demand curve will plot as a ____ line
Straight, horizontal
The market equilibrium price is determined by where the industry's market supply curve intersects ____
The industry's market demand curve
The cost data reflect ____
The law of diminishing returns
Total revenue rises by ____ for each additional unit sold
The product price
Multiplying price by the corresponding quantity the firm can sell
Total revenue
True or false? For Firms Facing Losses Due to Fixed Costs, Shutting Down in the Short Run Does Not Mean Shutting Down Forever
True
True or false? Price and average revenue are the same thing
True
Within pure competition, new firms can enter or exit the industry ____
Very easily
Features of pure competition:
Very large numbers, standardized product, price takers, free entry and exit