Microeconomics U3
What is meant by allocative efficiency? Allocative efficiency is when every good or service
is produced up to the point where the marginal benefit for consumers equals the marginal cost of producing it.
What conditions make a market perfectly competitive? A market is perfectly competitive if
it has many buyers and many sellers, all of whom are selling identical products, with no barriers to new firms entering the market.
The figure illustrates the average total cost (ATC) and marginal cost (MC) curves for an orange farmer in California. Assume the market for oranges is perfectly competitive. Part 2 Suppose the market price of oranges is $20.00 per crate. Characterize the farmer's profit. Part 3 At a $20.00 price, the farmer will
$20
The orange farmer will make a profit if the price of oranges is above $20.0020.00 per crate. (Enter your response as an integer.)
$20
Which of the following best explains why firms don't maximize revenue rather than profit?
At the point where revenue is maximized, the difference between total revenue and total cost may not be maximized.
When are firms likely to be price takers? A firm is likely to be a price taker when
It represents a small fraction of the total market
If a firm decided to maximize revenue, would it be likely to produce a smaller or a larger quantity than if it were maximizing profit? The firm would produce a ________ quantity of output.
Larger
The increase in total revenue that results from selling one more unit of output is
Marginal Revenue
A startup firm in a perfectly competitive market finds that its average total cost is higher than the market price. Since the firm is incurring short-run losses, the management is debating whether to continue operations. Alex Ferguson, a senior manager, feels that this is a temporary phase and the firm should continue operations. Which of the following, if true, would support Alex's argument?
The current price of the product covers the variable cost of production.
What is the relationship between price, average revenue, and marginal revenue for a firm in a perfectly competitive market?
Price is equal to both average revenue and greater than marginal revenue
Briefly discuss the difference between these two concepts
Productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industries
Which of the following is an expression of profit for a perfectly competitive firm? Profit for a perfectly competitive firm can be expressed as
Profit = (P-ATC) x Q, where P is price, Q is output, and ATC is average total cost
Refer to the graph to the right of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the following?
The firm can sell any amount of output as long as it accepts the market price of $7.00.
Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?
The firm will not sell any output.
How are prices determined in perfectly competitive markets? In perfectly competitive markets, prices are determined by
The interaction of market demand and supply because firms and consumers are price takers
Why do single firms in perfectly competitive markets face horizontal demand curves?
With many firms selling an identical product, single firms have no effect on market price
What is a price taker? A price taker is
a firm that is unable to affect the market price.
If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm
added more to total revenue than it added to total costs.
Explain why it is true that for a firm in a perfectly competitive market that P = MR = AR.
firms can sell as much output as they want at the market price
What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be
many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.
The price of a seller's product in perfect competition is determined by
market demand and market supply.
Question content area top Marginal revenue is
the change in total revenue divided by the change in the quantity of output.
Explain why it is true that for a firm in a perfectly competitive market, the profit-maximizing condition MR = MC is equivalent to the condition P = MC. Part 2 When maximizing profits, MR = MC is equivalent to P = MC because
the marginal revenue curve for a perfectly competitive firm is the same as its demand curve.
In perfect competition
the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.
Which of the following is the best example of a perfectly competitive industry?
the wheat market.
What is meant by productive efficiency? Productive efficiency is
when a good or service is produced at lowest possible cost.