ECON1101: Chapter 8

Given the data provided in the table below, the total revenue (TR) for production at quantity (Q) level 4 equals

$20.00

The table below sets out the amount of capital needed for certain investment projects and the rate of return for each project. What is this firm's demand for physical capital if their hurdle rate is 5%?

$23 million

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its

allocative efficiency

Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers

can also be interpreted as shifts of their respective marginal cost curves.

A perfectly competitive industry is a ____________________

hypothetical extreme.

I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output

is dictated by the forces of demand and supply.

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

keep the business open in the short-run, but plan to go out of business in the long-run.

In the ________, the perfectly competitive firm will react to profits by __________________________ .

long run; increasing its production

In the ________, the perfectly competitive firm will react to losses by __________________________.

long run; reducing production or shutting down

If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then

marginal cost is below average variable cost.

Under perfect competition, any profit-maximizing producer faces a market price equal to its

marginal costs

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ .

marginal revenue; marginal cost

What happens in a perfectly competitive industry when economic profit isgreater than zero?

new firms may enter the industry and all of the above

When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _________________ of investing in physical capital.

opportunity cost

Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is

preparing to exit operations.

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

Refer to the diagram below. In this instance, the marginal revenue curve

reflects each of the above

In the _________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _____________________ .

short run; losses are smallest

If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .

shutdown point

Even when competitive firms are unable to calculate marginal revenue product directly, _________________________________________ will push wage rates toward the marginal revenue product of labor.

the pressures of competition in the labor market

Refer to the diagram below. In this instance, at the range of output represented at point b,

total costs exceed total revenues.