Perfect Competition Test (Ch. 23)
TR
_____ > TC, then firm is earning an economic profit
VC
_____ change with a change in output
FC
_____ do not change with a change in output
ATC curve
_____ is added to determine if this firm is making an economic profit, an economic loss, or breaking even
allocative efficiency
_____ is where P=MC
productive efficiency
_____ is where P=min ATC
TFC
_____ stay constant, even if you produce nothing!
explicit costs
monetary payments a firm must make to an outsider to obtain a resource=
product differentiation
monopolistic competition is close to pure or perfect competition except that there is _____
breakeven
no profit, but no loss either; TR=TC
oligopoly
occurs when a few firms control the market
MB=MC
other things being constant, the most efficient allocation of resources occurs when?
homogenous
perfect competition exists when there are many producers and many consumers of a _____ product
elastic
perfectly competitive FIRM demand curve is perfectly _____
downward
perfectly competitive INDUSTRY/MARKET demand curve is _____ sloping
shutdown point
price at which a firm ceases to produce in the SR; temporary b/c firm hopes price will go back up and then will start to produce again=
supply
upward sloping segment of the MC curve is the firm's individual _____ curve
P=MC=min ATC, LR equilibrium
we love perfect competition bc produce where _____ aka _____
TFC, VC
when P=AVC or P<AVC, firm can't cover any of its _____ so why produce when your _____ are the real production costs
monopoly
when one firm controls the market
due to decreasing marginal returns (law of DMR)
why does MC finally increase?
due to increasing marginal returns
why does MC initially decrease?
identical cost curves, and constant costs
2 assumptions for LR equilibrium
fall, rise
ATC and AVC _____ when MC is below them and _____ when MC is above them
SR
FC exits only in the _____
decreases, decreases economic loss exit, decreases, increases, decreases breakeven point
If Demand decreases: Price _____, Quantity _____ Firms accept lower prices, so it's an _____ Firms _____ the market; Supply ____, Price _____, Quantity _____ Firms accept a new higher price...back to _____ point
increases, increases enter increases, decreases, increases breakeven
If Demand increases: Price _____, Quantity _____ Firm makes profits at a higher price, so more firms _____ the market Supply _____, Price _____, Quantity _____ Firms back to _____ point
economic profits, enter, right, decrease, increase, decrease
In the LR, when individuals see that firms are earning _____, more firms _____ into the market, causing the industry supply curve to shift _____, industry/market price to _____, and industry quantity to _____. Firms' quantities _____.
exit
LR decision to leave the market=
P= min ATC= breakeven point
LR equilibrium= (3)
lowest points
MC curve crosses the AVC curve and ATC curve at their lowest points
law of DMR
MC eventually rises bc of the _____
many differentiated relatively easy yes yes
Monopolistic Competition: number of firms= differentiate or homogenous product?= easy of entry?= price-setting power= none-price competition=
one unique product very difficult price setter usually breaks up bc of inability to control competition
Monopoly: number of firms= differentiate or homogenous product?= easy of entry?= price-setting power= none-price competition=
few large firms ("big business") differentiated and interdependent difficult yes LOTS
Oligopoly: number of firms= differentiate or homogenous product?= easy of entry?= price-setting power= none-price competition=
many small firms homogenous very easy market determines price none
Perfect Competition: number of firms= differentiate or homogenous product?= easy of entry?= price-setting power= none-price competition=
shut down
a SR decision not to produce anything during a specific period of time due to market conditions=
DMR
a firm's SR marginal cost cure will eventually increase because of _____
LR
a monopoly firm can make economic profits in the ____, although this is not guaranteed
MR=MC, demand
a monopoly firm maximizes profits by producing at the quantity where _____ and by setting price according to the _____ curve at that quantity
price, marginal cost, misallocation
a monopoly firm will operate where _____ is greater than _____, causing a _____ of resources
allocatively and productively
a perfectly competitive firm is _____ and _____ efficient in the LR
variable
all input costs are _____ in the LR
MB=MC
allocatively efficient where?
fixed
at least one input price is _____ in the SR
P< or = to AVC
at what point should a firm shut down?
allocatively, productively
bc firm produces where MC=MR or P=MR, firm will always be _____ efficient but not always _____ efficient
LR
defined as a period in which there are no FC, and firms are free to allocate their resources as they please
elastic
demand is perfectly _____, meaning you can buy an infinite amt of g/s at one price
total costs
equal FC plus VC
permanent, LR
exiting the industry is _____ and in the _____
price, takes, industry
firm cannot control the _____ at which it sells the product but _____ the price as given by the industry and determines how much output to produce
Price is above ATC at the profit-maximizing quantity
firm is earning a profit if?
economic profit
firm makes an _____ if it more than covers bot its explicit and implicit costs
accounting profit
firm makes an _____ when its revenue exceeds its explicit costs
MR
for a monopoly firm or any firm under imperfect competition, _____ is less than price
profitable breaks even unprofitable
if P>ATC, the firm is ____ if P=ATC, the firm _____ if P<ATC, the firm is _____
profitable breaks even unprofitable
if TR>TC, the firm is _____ if TR=TC, the firm _____ if TR<TC, the firm is _____
economic loss
if a firm has more costs than revenue, it operates at an _____
economic profit
if a firm has more revenue than costs, it makes an _____
breaks even
if a firm has revenue that just covers all its costs, it _____
economic profit, normal profit, implicit cost
in LR equilibrium, firm makes zero _____ but makes a _____ bc it is an _____
MR=MC
in a perfectly competitive market, all firms maximize profits by producing where?
FC, VC
in a shut down, you still have to pay _____, just not _____
FC or VC
in an exit, you pay no _____ nor _____
higher, lower
in the LR, a monopoly firm charges at a _____ price and produces at a ____ output than a perfectly competitive firm with the same cost curves
P=MC=min ATC
in the LR, a perfectly competitive firm produces at an output where?
breakeven point
in the LR, firm always returns to _____
VC
in the SR, a firm can operate at a loss as long as its revenue covers its _____
implicit costs
income a firm sacrifices when it employs a resource it owns to produce a product instead of selling the resource to someone else
productively efficient
producing at the lowest production cost=
allocatively efficient
producing the quantity of g/s that society wants
LR equilibrium
productive efficiency and allocative efficiency are the same when a perfectly competitive market is in _____
MC= min ATC
productively efficient where?
MR=MC
profit-maximizing rule
normal profit
represents the opportunity cost of capital and is equal to the avg return on investment
MC
the additional cost of producing an additional unit of output; very impt in determining at what price and output a firm will operate=
sum, supply curves
the industry/market supply curve is the _____ of the individual firms' _____