ECO 2314
Gut Bombs sandwich shop usually sells 3,500 sandwiches per month for $10 each. Their marginal revenue per sandwich is
$10
Gut Bombs sandwich shop usually sells 3,000 sandwiches per month for $8 each. Their total revenue is
$24,000
Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of it 10 workers $2,500 a month and spends $5000 on food. There are no other production costs. Gut Bombs sandwich shop usually sells 4,000 sandwiches per month for $10 each. Their profit is $.
$5,000
Gut Bombs sandwich shop usually sells 3,000 sandwiches per month for $8 each. Their marginal revenue per sandwich is
$8
When firms experience short-run losses, firms will continue exiting the market causing the price to rise until economic losses are reduced to .
0
A firm would want to enter the market if it sees it could produce at a level of
ATC that is below the market price.
_____ revenue is total revenue divided by the quantity sold.
Average
In a perfectly competitive market, which of the following participants have full information?
Both buyers and sellers
The process of market entry and exit leads us to several conclusions:
Economic profits are zero.,Supply is perfectly elastic.,Firms operate at an efficient scale.
A firm should keep producing as long as the marginal cost is greater than the marginal revenue.
FALSE
If firms have differing costs, the less efficient firms, with higher ATC, are able to earn more economic profit.
FALSE
True or false: In real life, most markets meet all the assumptions of perfect competition.
FALSE
Which of the following is true of a perfectly competitive market?
Firms have full information.
____ costs neither affect, nor are affected by, the quantity the firm produces in the short run.
Fixed
A firm's short-run supply curve is the same as its:
MC curve at points after it intersects the AVC curve.
Which of the following are examples of standardized goods?
Oil,Copper,Gold
Perfectly competitive firms operate at an efficient scale because
P = ATC at the minimum of ATC.
Firms will continue entering a market, causing the price to fall until
P = ATC where economic profits are zero.
When losses occur, firms will continue exiting the market, causing the price to rise until
P = ATC where economic profits are zero.
The firm should produce in the short run if _____; but when deciding whether to produce in the long run, the firm should only produce when _____.
P is greater than AVC; P is greater than ATC.
In the long run, a firm should exit if
P is less than minimum ATC.
Which of the following are true in the long run as firms enter the market?
The new market equilibrium price is lower.,The market supply curve shifts to the right.
Which of the following is NOT one of the four defining characteristics of a competitive market?
There are only a few sellers.
Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of it 10 workers $2,500 a month and spends $5,000 on food. There are no other production costs. Gut Bombs sandwich shop usually sells 3,500 sandwiches per month for $10 each.
They have a profit of zero.
Average revenue is
TotalRevenueQuantitySold.
A market in which fully informed, price-taking buyers and sellers easily trade a standardized good or service is called
a perfectly competitive market
Marginal revenue is the additional revenue generated by selling
an additional unit of a good.
For perfectly competitive firms P = MR = MC; and MC = ATC at the minimum of ATC. Therefore P = ATC and the firms operate at
an efficient scale.
In the long run, firms in a competitive market operate at
an efficient scale.
Economists use the idea of perfectly competitive markets to refer to
an idealized model of markets.
The key difference between supply in the short run and supply in the long run is that in the long run we assume that firms
are able to enter and exit the market.
In perfectly competitive markets,
buyers and sellers face very low transaction costs.
When buyers and sellers know exactly what is being traded,
buyers and sellers have the same information.,there are no information asymmetries.
In a perfectly competitive market, producers focus on the quantity because they
cannot influence the market price.
When goods are not standardized, producers will be able to
charge different prices.
Most sellers and buyers in most markets are not in the happy position of being able to set their own price. Instead, most face some degree of .
competition
When P is greater than minimum AVC, the firm should
continue to produce.
As the market price rises, it intersects the marginal ____ curve at a higher output level.
cost
Free entry into a market in the short run can help drive
cost cutting.,quality improvements.,innovation.
As the market price falls, it intersects the marginal curve at a (lower/higher) output level.
cost,smaller
In real life, goods are
differentiated by quality, brand, or other characteristics.
Fixed costs are irrelevant in the decision about whether to shut down production in the short run because fixed costs
do not affect, and are not affected by, the quantity the firm produces.
If firms have differing costs, the more efficient firms, with lower ATC, are able to earn positive _____ profit.
economic
In the long run,
economics profits fall to zero
A firm's _____ scale is the quantity that minimizes average total cost.
efficient
Free _____ means new firms can be created and begin producing goods and services.
entry
The profit-maximizing quantity is the one at which the marginal revenue of the last unit was
exactly equal to the marginal cost.
Free _____ means firms can decide to sell out and exit the market permanently.
exit
In the long run, as P = ATC
firms have no incentive to enter the market
Marginal revenue is equal to the price of the good for
firms in a competitive market.
When there are economic profits in a market, _____.Â
firms will enter the market to take advantage of the profit-making opportunity
When there are economics losses in a market,
firms will leave the market.
Every firm in a competitive market can sell as much as it wants because:
firms will not want to produce an infinite quantity.,each firm is small relative to the size of the whole market.
The difference between a firm's variable and total costs is its _____ costs.
fixed
The firm has to pay its _____ costs regardless of how much it produces, and even if it produces nothing at all.
fixed
When a firm shuts down and produces nothing, it still must pay
fixed costs
Some costs are ____ only in the short run, but in the long run, all costs become _____.
fixed; variable
The four defining characteristics of a competitive market are that
goods are standardized.,buyers and sellers can't bargain over prices.,there are no transaction costs.,buyers and sellers have full information.
When P > minimum AVC and P < minimum ATC in the short run, a firm:
has a loss but remains open
When P is greater than minimum ATC, the firm
has a profit.
A sunk cost is a cost that
has already been incurred and cannot be recovered.
A perfectly competitive market can be defined as,
having price-taking buyers and sellers trading standardized goods.
Free entry into a market can
help drive innovation, cost-cutting, and quality improvements.
In a perfectly competitive market in the long run, because entry and exit will increase or decrease the market supply until the price returns to the zero-profit equilibrium price, the long run supply curve is
horizontal.
In a perfectly competitive market, firms earn zero economic profits
in the long run
In a perfectly competitive market in the short run, an increase in demand causes equilibrium price to
increase and the equilibrium quantity to increase.
Suppose Meg’s Marine is producing 10 boats and is considering whether or not to increase its output to 11 boats. At an output of 10 boats, the marginal revenue is $1,000, and the marginal cost is $800. In this case, they should
increase production because marginal profit increases.
There are no ___________ in a perfectly competitive market; everyone knows exactly what they are trading.
information asymmetries
When firms are responding to the entry of new competitors, they are more likely to
innovate.
Over time, average total cost may change because
innovative firms use new technologies that enable them to produce goods at lower cost.
The marginal cost curve
intersects both average variable and average total cost curves at their lowest points.
A firm should keep producing for as long as marginal revenue is than marginal cost.
larger
In a perfectly competitive market, firms earn zero economic profits and operate at an efficient scale in the ________ run.
long
The key difference between supply in the short run and supply in the long run, is that we assume that firms are able to enter and exit the market only in the _____ run.
long
In the _____ run, firms in a perfectly competitive market earn zero _____ profit.
long; economic
If the market price drops below the minimum AVC, the firm would cease production in the short run because the
loss will be greater than the fixed costs.
Gut Bombs sandwich shop pays $5,000 a month in rent space and equipment. It pays each of it 10 workers $2,500 a month and spends $5000 on food. There are no other production costs. Gut Bombs sandwich shop usually sells 3,000 sandwiches per month for $10 each. Their (profit/loss) is $. (Do not include a negative sign if there is a loss).
loss,$5,000
The marginal cost curve intersects both average variable and average total cost curves at their _____ points.
lowest
More firms will enter a market if the existing firms are
making a profit.
The revenue generated by selling an additional unit of a good is called
marginal revenue
The ability to noticeably affect market prices implies
market power.
A perfectly competitive firm will make profits as long as the _____.Â
market price is above the firm's average total cost
The short run market supply curve is upward sloping because each firm supplies
more as the price rises.
When a market has free entry and exit, there will likely be
more firms competing.
If the market price is lower than ATC but higher than AVC, if the firm continues to produce, the firm will have
more revenue than variable cost.
In the real world, the long-run supply curve may slope upward because
newer firms with higher costs will be attracted to enter a market with higher prices.
Suppose Meg’s Marine is producing 14 boats and is considering whether or not to increase its output to 15 boats. At an output of 14 boats, the marginal revenue is $1,000, and the marginal cost is $1200. In this case, they should
not increase production because marginal profit decreases.
The average total cost reflects economic costs which include explicit costs and _____ costs.
opportunity
Having price-taking buyers and sellers trading standardized goods is sufficient to define a competitive market.
perfect
In real life, few markets meet all the assumptions of ______.
perfect competition
Buyers and sellers have all of the information they need to make the best decision possible in a
perfectly competitive market.
Producers are able to sell as much as they want without affecting the market price in a
perfectly competitive market.
In a perfectly competitive market in the long run, because entry and exit will increase or decrease the quantity supplied until the price returns to the zero-profit equilibrium price, the long run supply curve is
perfectly elastic.
Market is the ability to noticeably affect market prices.
power
Average revenue is the same as the market _____ for a firm in a perfectly competitive market.
price
Because buyers and sellers in a perfectly competitive are so small relative to the total size of the market, they must accept the prevailing market .
price
Every firm in a competitive market can sell as much as it wants at the market price because any individual firm's choice about the quantity to produce has such a small effect on the total quantity supplied to the market, that the change in market _____ is essentially zero.
price
In a perfectly competitive market, producers focus on output because they cannot influence the market .
price
Marginal revenue is a horizontal line that equals ________.
price
The first essential characteristic of a perfectly competitive market is this: buyers and sellers have so much competition, they have no ability at all to set their own .
price
A firm could be making more money by pursuing other opportunities if
price falls below ATC.
In a perfectly competitive market in the long run, because entry and exit will increase or decrease the market supply, until the price returns to the zero-profit equilibrium price,
price is the same at any quantity.
For any firm selling one product, average revenue is equal to the
price of the good.
Total revenue is
price × quantity.
Marginal _____ equals marginal revenue minus marginal cost.
profit
If a firm produces any more than the output level where marginal cost equals marginal revenue, its
profits would go down.
When goods are standardized, buyers have no reason to prefer those sold by one producer over those sold by another,
provided that they are the same price.
The only choice that a perfectly competitive firm can make to affect its profits, is to decide the
quantity to produce.
In the real world, firms
rarely have the same cost structure.
When deciding whether to produce in the long run, the firm should consider whether average _____ is greater than average total cost.
revenue
For a firm in a perfectly competitive market, marginal _____ is equal to the price of the good.
revenue,cost
Marginal profit equals to marginal _____ minus marginal _____.
revenue; cost
In a perfectly competitive market, producers are able to
sell as much as they want without affecting the market price.
In perfectly competitive markets,
sellers face low (or zero) transaction costs. ,buyers face low (or zero) transaction costs.
When P is less than minimum AVC, the firm should
shut down.
Many natural resources can be considered _____ goods.
standardized
When goods are _____ they are interchangeable.
standardized
In a perfectly competitive market in the long run, after all adjustments have occurred, an increase in demand causes equilibrium price to
stay the same and the equilibrium quantity to increase.
If the market price is lower than ATC but higher than AVC, the firm should
still continue to produce in the short run.
In the long run, when firms in a perfectly competitive market earn zero economic profit, they _____.Â
still have enough revenue to cover their opportunity cost
The short-run market supply curve is the _____.Â
sum of all firms' MC curves above the minimum AVC.
A cost that has already been incurred and cannot be refunded or recovered is a _____ cost.
sunk
Over time, as new innovative firms enter the market, entry will result in a decrease in both the MC and the ATC curves, increasing the quantity ______, as well as profits, and driving the market price _____.
supplied; down
As firms exit a market, the market _____ curve decreases.
supply
As new firms enter a market, _____.
the short-run market supply increases and the short-run market demand stays constant
As more firms enter the market,
the total quantity offered for sale at any given price increases.
In a perfectly competitive market in the long run, entry and exit will increase or decrease the market supply curve, until the price returns to
the zero-profit equilibrium price.
One implication of goods being standardized is
there are no information asymmetries in a perfectly competitive market.
In a perfectly competitive market, _____.Â
there are so many buyers and sellers that no one buyer or seller can set their own price
In the short run, even if a perfectly competitive firm produces nothing,
they must pay the fixed costs which do not change when quantity falls to zero.
A perfectly competitive firm can only decide the quantity of output to produce because they are
too small to influence the market price.
A firm's efficient scale is the quantity that minimizes average _____ cost.
total
Price × quantity is equal to
total revenue
Average revenue is
total revenue divided by the quantity sold.
The marginal cost curve is
u-shaped.
In the long run, all costs become _____.
variable
A firm's short-run supply curve is the same as its MC curve at points after it intersects the AVC curve because the short run production decision depends entirely on the
variable costs of production.
When deciding whether to produce in the short run, the firm should consider whether price is greater than average _____ cost; but when deciding whether to produce in the long run, the firm should consider whether price is greater than average _____ cost.
variable; total
Producers are able to charge different prices
when goods are differentiated.
In a perfectly competitive market, producers are able to sell as much as they want without
worrying about whether they will cause a price change, or if they will find buyers.
