Econ Chapter 23—Perfect Competition

Refer to Exhibit 23-1. The dollar amounts that go in blanks (A) and (B) are, respectively, (Chart)

$12 and $12.

Refer to Exhibit 23-3. What is the increase in profit that would result from producing 43 units of the product rather than producing 40 units?

$13

Refer to Exhibit 23-7. At the profit-maximizing output level, the firm's total revenue is (Graph)

$360.00

Refer to Exhibit 23-7. At the profit-maximizing output level, average total cost is

$5.00

Refer to Exhibit 23-3. What is the maximum profit?

$59

Refer to Exhibit 23-7. What is the profit at 60 units of output? (Graph)

$60

Consider the following data: equilibrium price = $9, quantity of output produced = 1,000 units, average total cost = $7, and average variable cost $5. Given this, total revenue is __________, total cost is __________, and total fixed cost is __________.

$9,000; $7,000; $2,000

Refer to Exhibit 23-3. What quantity of output should the profit-maximizing firm produce? (Chart)

44 units

Refer to Exhibit 23-7. The perfectly competitive, profit-maximizing firm will produce __________ units of output. (Graph)

60

Refer to Exhibit 23-8. Which of the following is true in the short run of A and B, two perfectly competitive firms? (Two Graphs)

Both A and B will continue to produce in the short run.

Consider the following data: equilibrium price = $10, quantity of output produced = 100 units, average total cost = $13, and average variable cost = $7. What will the firm do and why?

Continue to produce in the short run, because price is greater than average variable cost.

Which of the following is not an assumption of the theory of perfect competition?

Each firm produces and sells a differentiated product

Why must profits be zero in long-run competitive equilibrium?

If profits are not zero, firms will enter or exit the industry.

For a perfectly competitive firm, profit maximization or loss minimization occurs at the output at which

MR = MC.

Which of the following is not a condition of long-run competitive equilibrium?

Marginal revenue is greater than marginal cost.

Refer to Exhibit 23-2. If the firm produces the quantity of output at which marginal revenue (MR) equals marginal cost (MC), is it guaranteed maximum profit or minimized loss? (Graph)

No, at the quantity of output at which MR = MC, it could be the case that average variable cost is greater than price and the firm would do better to shut down.

Does a real-world market have to meet all the assumptions of the theory of perfect competition before it is considered a perfectly competitive market?

No, probably no real-world market meets all the assumptions of the theory of perfect competition. All that is necessary is that a real-world market behave as if it satisfies all the assumptions.

In the long run, a firm earns zero economic profit, given the condition that

P = ATC.

Which of the following conditions does not characterize long-run competitive equilibrium?

Price is greater than marginal cost.

Refer to Exhibit 23-2. What quantity does the profit-maximizing or loss-minimizing firm produce? (Graph)

Q2, where the difference between "what is coming in" on the last unit and "what is going out" is zero.

Consider the following data: equilibrium price = $8.50, quantity of output produced = 100 units, average total cost = $10, and average variable cost = $9. What will the firm do and why?

Shut down in the short run, because price is below average variable cost.

Which of the following statements is false?

The theory of perfect competition is completely and accurately descriptive of most real-world firms.

If the perfectly competitive firm is producing an output level at which price equals marginal cost, it is

There is not enough information to answer the question.

In the short-run, if P < ATC, a perfectly competitive firm should

There is not enough information to answer the question.

Refer to Exhibit 23-2. For the firm that faces the demand curve in the exhibit, (Graph)

a. marginal revenue is constant, b. price equals marginal revenue, and c. if the firm maximizes profits, it produces the quantity of output at which price equals marginal cost.

Real-world markets that approximate the four assumptions of the theory of perfect competition include

a. some agricultural markets. and c. the stock market.

Refer to Exhibit 23-4. The firm sells its product at P1 and produces Q1. Given this situation,

a. total variable cost is equal to areas 1 + 2 and b. total revenue is equal to area 1.

Demand increases in an increasing-cost industry that is initially in long-run competitive equilibrium. After full adjustment, price will be

above its original level.

If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing that unit the firm

added more to total revenue than it added to total costs.

The price at which a perfectly competitive firm sells its product is determined by

all sellers and buyers of the product.

Refer to Exhibit 23-4. Where can you find the lowest price that will motivate the firm to produce Q1 in the short run?

at the horizontal line running to "AVC"

In the theory of perfect competition,

b. the single firm's demand curve is horizontal. And d. the market demand curve is downward sloping.

Perfectly competitive firms are price takers for all of the following reasons except that

barriers to exit force firms to sell at the market price.

The theory of perfect competition generally assumes that

c. buyers and sellers act independently of other buyers and sellers.

A seller is a price taker. This means that the seller sells his product at the price

determined in the market.

A "price taker" is a firm that

does not have the ability to control the price of the product it sells.

The market demand curve in a perfectly competitive market is

downward sloping.

Refer to Exhibit 23-1. The firm's demand curve represented by the information in this table is

horizontal.

Refer to Exhibit 23-1. The marginal revenue curve represented by the information in this table is

horizontal.

Assume a constant-cost industry that is initially in long-run competitive equilibrium. An increase in demand will cause a(n) __________ in prices and profits, and as a result, firms will __________ the industry, causing the market supply curve to shift __________, which, in turn, will eventually cause the equilibrium price to be __________ before.

increase; enter; rightward; the same as

The demand curve for a perfectly competitive firm

is perfectly horizontal.

Refer to Exhibit 23-1. The data in this table are relevant to a perfectly competitive firm because (Chart)

it doesn't have to lower price to sell additional units of the product.

The perfectly competitive firm will seek to produce the output level for which

marginal cost equals marginal revenue.

A perfectly competitive firm should increase its level of production as long as

marginal revenue is greater than marginal cost.

The perfectly competitive firm's short-run supply curve is the

portion of its marginal cost curve that lies above its average variable cost curve.

If firms are earning zero economic profits, they must be producing at an output level at which

price equals average total cost.

Resource allocative efficiency occurs when a firm

produces the quantity of output at which price equals marginal cost.

The perfectly competitive firm will produce in the

short run if price is below average total cost but above average variable cost.

Refer to Exhibit 23-4. Equilibrium price is P1, and the firm produces Q1. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is (Graph)

taking a loss equal to areas 2 + 3.

Marginal revenue is

the change in total revenue brought about by selling an additional unit of the good.

If MR > MC, then

the firm can increase its profits or minimize its losses by increasing output.

For a perfectly competitive firm,

the marginal revenue curve and the demand curve are the same.

Refer to Exhibit 23-4. The firm sells its product at P1 and produces Q1. Given this situation,

total cost is equal to areas 1 + 2 + 3.

Which of the following is the best example of a homogeneous good?

wheat