Perfect Competition
Zero economic profits for a perfectly competitive firm in the long run means _____
the firm is in equilibrium.
Perfectly competitive firms ______ earn zero economic profit in the long-run equilibrium because ________________.
always; firms enter whenever their economic profit is positive and exit whenever it's negative, so in long run equilibrium economic profit must always be zero
Perfect competition is the term used to describe...
an industry in which numerous firms produce identical products with little to no barriers to entry
Firms will continue to enter a competitive industry until __________.
any excess returns have been competed away
If a firm shuts down in the short run, its losses are equal to
average fixed costs
A firm can stay in business while taking a loss in the short-run as long as it covers its ...
average variable costs.
In a market with perfectly competitive firms, the market demand curve is usually ____________ and the demand curve facing each individual firm is __________.
downward sloping; horizontal
The difference between zero profit and zero economic profit is that
economists include opportunity cost in zero economic profit, while accountants do not include opportunity cost in zero profit
Firms entering a competitive industry will cause the price of the product to ____
fall
When a firm enters the steel industry, the short-run equilibrium price of steel will ______
fall
For a perfectly competitive firm, marginal revenue equals average revenue because the ...
firm's demand curve is horizontal.
The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of ...
free entry and exit
The short-run supply curve of a perfectly competitive firm
goes through the lowest point on both its short-run average variable cost and its short-run average total cost curves
The competitive firm has no influence over price because ...
its output is so insignificant relative to the market as a whole.
The long-run supply curve of an industry equals the industry's________.
long-run average cost curve
Regardless of quantity in long-run equilibrium, the industry price cannot exceed the __________.
long-run average cost of supplying that quanity
In short-run equilibrium, a perfectly competitive firm
may earn a profit or a loss.
The demand curve in the perfectly competitive industry is _______ sloped.
negatively
Economists study perfect competition...
to establish a benchmark by which to measure the performance of the economy.
At a perfectly competitive firm's short-run equilibrium level of output ...
p=MR=MC price = marginal revenue = marginal cost
A perfectly competitive firm is a price _____
taker
The perfectly competitive firm's will shut down in the short run if...
Price < average variable costs (P < AVC)
The short-run supply curve of the competitive industry is found by summing the ...
...MC curves about AVC of the individual firms in the industry
The supply curve for a competitive industry is obtained by ...
...horizontally summing the supply curves of firms in the industry.
At a firm's profit-maximizing level of output, its price is $200 and its short-run average total cost is $225. The firm should shut down if...
...its short-run average variable cost exceeds $25.
A firm in a perfectly competitive industry...
...may choose a different input mix in the long run than in the short run
An increase in demand will cause an increase in industry output in the long run because ...
...new firms enter the industry.
When a firm leaves a perfectly competitive industry...
...the individual demand curves of remaining firms shift up in the long run
The short-run supply curve of the competitive firm is the firm's
MC curve above the minimum point on the AVC curve
A firm in short-run equilibrium always earns positive profits if
SRAR>SRAC (short-run average revenue > short-run average cost)
A firm will shut down if...
Total costs - total revenue > total fixed costs
If the opportunity cost of capital is below the rate of return to capital in the perfectly competitive beauty salon industry
resources will flow into the industry
A perfectly competitive firm would be willing to remain in the industry in the long run at zero economic profit because...
revenue is equal to all costs, including the opportunity cost of capital and labor
The entry of firms into a competitive industry causes the supply curve to __________.
shift right.
What is the closest to the economist's definition of perfect competition?
the fishing industry
In a perfectly competitive industry, influence over price is exerted by ....
the forces of supply and demand.
What resembles a perfectly competitive market?
the stock market
If the price falls below minimum SRAVC, the quantity supplied by the firm will be
zero