Econ Mid 2
For a perfectly competitive firm, profit is maximized at the output level where i. total revenue exceeds total cost by the largest amount. ii. marginal revenue equals marginal cost. iii. price equals marginal cost.
i, ii, and iii
In part, perfect competition arises if i. each firm's minimum efficient scale is large relative to demand. ii. each firm produces a good or service identical to those produced by its many competitors. iii. there are significant barriers to entry.
ii only
In the long run, a firm in a perfectly competitive market will
make zero economic profit, so that its owners earn a normal profit.
In a perfectly competitive industry, when a firm is producing so that its total revenue equals its total cost, the firm is
making zero economic profit
A firm that is a price taker face
many other firms produce identical pro
A firm in perfect competition is a price taker because
many other firms produce identical products
The total product curve shows the relationship between total product and
quantity of labor
When new firms enter a perfectly competitive market, the market supply curve shifts ________ and the price ________.
rightward; falls
A perfectly competitive firm
sells a product that has perfect substitutes
If a business owner decided to expand her business but rather than borrowing money from a bank used her own funds, then
she would forego the opportunity to earn interest on the money.
When new firms enter the perfectly competitive Miami bagel market, the market
supply curve shifts rightward
Marginal cost equal
the change in total cost that results from a one-unit increase in output.
A firm's marginal revenue is
the change in total revenue that results from a one-unit increase in the quantity sold.
Total cost includes
the cost of both variable and fixed resources
The law of decreasing returns states that as a firm uses more of a
variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases.
Increasing marginal returns to labor
are the result of specialization and division of labor in the production process.
In the long run, perfectly competitive firms produce at the output level that has the minimum
average total cost
A perfectly competitive firm will shut down when the price is just below the minimum point on the
average variable cost curve
When a firm adopts new technology, generally its
cost curves shift downward.
A perfectly competitive firm is producing at the quantity where marginal cost is $6 and average total cost is $4. The price of the good is $5. To maximize its profit, this firm should
decrease its output.
The short run is the time frame
during which the quantities of some resources are fixed.
In the long run, new firms enter a perfectly competitive market when
economic profit is greater than zero.
In a perfectly competitive market, a(n) ________ occurs because _____
efficient outcome; total surplus is maximized
Decreasing marginal returns
affect all firms, but at different production levels.
In the long run, a perfectly competitive firm will
make zero economic profit
A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's total cost?
$1,000
A perfectly competitive firm is producing 50 units of output, which it sells at the market price of $23 per unit. The firm's average total cost is $20. What is the firm's total revenue?
$1,150
Perfect competition ________ an efficient outcome because _____
achieves; total surplus is maximized achieves; marginal benefit equals marginal cost
At the Punjab Bakery, two workers can decorate 14 cakes in an hour and three workers can decorate 18 cakes in an hour. The marginal product of the third worker is
4 cakes, and the average product for three workers is 6 cakes.
What is the difference between perfect competition and monopolistic competition?
In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.
A perfectly competitive firm will maximize profit when the quantity produced is such that the
The firm's marginal revenue is equal to its marginal cost
Which of the following is the best example of a perfectly competitive market?
farming
If a perfectly competitive firm finds that the price exceeds its ATC, then the firm
is making an economic profit.
The primary goal of a business firm is to
maximize profit
In the short run, a perfectly competitive firm ________ make an economic profit and ________ incur an economic loss
might; might
When firms in a perfectly competitive market are earning an economic profit, in the long run
new firms will enter the market
A monopoly occurs when
one firm sells a good that has no close substitutes and a barrier blocks entry for other firms
In the long run, existing firms exit a perfectly competitive market
only if they incur an economic loss.
In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?
only perfect competition
When an economist uses the term "cost" referring to a firm, the economist refers to the
opportunity cost of producing a good or service, which includes both implicit and explicit cost.
A firm that is a price taker faces
perfectly elastic demand curve
The long run is defined as
the period of time when all resources are variable
If a perfectly competitive firm raised the price of its product
the quantity of output it sells decreases to zero.
The U-shaped average total cost curve is
the result of average fixed cost falling and decreasing marginal returns as output increases.
Normal profit is
the return to entrepreneurship.
If a struggling perfectly competitive furniture store in Detroit shuts down, it incurs an economic loss equal to its
total fixed cost
The cost that does NOT change as output changes is
total fixed cost
The marginal product of labor equals the change in ________ from a one-unit increase in the quantity of labor.
total product
To maximize its profit, in the short run a perfectly competitive firm decides
what quantity of output to produce.
If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue
will also be $5