ECON 2302: Chapter 10
At which point will a firm be indifferent whether to shut down or continue to produce?
point b
A purely competitive firm is a price
taker
A purely competitive firm's demand schedule is equal to which of the following?
- marginal revenue - average revenue
Which of the following are considered to be the four basic market structures?
- Monopolistic competition - Pure monopoly - Pure competition - Oligopoly
Which of the following features occur in a purely competitive market?
- Sales in both national and international markets - Many independently acting sellers
Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic?
- The firm cannot obtain a higher price by restricting its output. - The firm does not need to lower its price to increase its sales volume.
Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location?
- prices of variable inputs - technology
Which of the following best describes pure competition?
An industry involving a very large number of firms producing identical products and in which new firms can enter or exit the industry very easily.
A basic feature of the purely competitive market is the presence of ______.
a large number of sellers
A firm operating in a purely competitive market is a price taker because it ______.
cannot change the market price, it can only adjust to it
In a perfectly competitive market, the demand curve for an individual firm is perfectly _______ at the market price.
elastic
The profit-maximizing rule of MR=MC states that in the short run, the firm will maximize profit or minimize loss by producing the output for which marginal revenue ______ marginal cost.
equals
True or false: A pure monopoly involves a very large number of firms producing a single unique product.
false
True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output.
false
Economists group industries into _____ distinct market structures.
four
In pure competition, to calculate economic profit, we first calculate the difference between ________ and average total cost and then multiply it by output.
price
This graph illustrates that a firm can minimize its losses by producing where ______.
price exceeds minimum average variable cost but is less than average total cost
The MR = MC rule is known as the:
profit-maximizing rule
A(n) _____ competitive firm's average-revenue schedule is also known as its demand schedule.
pure
_____ competition is considered to be rare in the real world.
pure
In a purely competitive market, price per unit to the purchaser is synonymous with _____ per unit or _________ revenue to a seller.
revenue/cost; average/marginal
In this table, at a price of $71, the profit-maximizing or loss-minimizing level of output is ______.
0 units
In pure competition, if the first unit of output sold increases total revenue from $0 to $131, marginal revenue for that unit is $131. If the second unit sold increases total revenue from $131 to $262, marginal revenue is again $131. The third unit sold increases total revenue to $______ and marginal revenue is now $______.
393; 131
In this table, at a price of $81.00, the loss-minimizing level of output is _____.
6 units
Which of the following explains why a purely competitive firm is a price taker?
A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market
What is the firm's most likely response if price is exactly equal to minimum average variable cost?
Indifference to producing or shutting down
Strictly speaking, pure competition is relatively rare. Then why do we study it?
It produces ideal results in terms of low-cost production and allocative efficiency, which can be used as a basis of comparison
If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which:
MR=MC
Which of the following best describes a pure monopoly?
One firm selling a single unique product, where entry of additional firms is blocked and there is considerable control over price
Based on the information in this chart, at which price will a firm shut down?
P1
Which of the following is a method of calculating economic profit in pure competition?
Price minus average total cost multiplied by quantity
______ is relatively rare in the real world, although this market model is highly ______ to several industries.
Pure competition; relevant
A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which:
TR exceeds TC by as much as possible
Which of the following best describes the economic break-even point?
The point where total revenue covers all costs, but there is no economic profit.
Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is:
a horizontal line at 2 cents per paper clip.
In a purely competitive market, price per unit to a buyer equals:
average revenue to a seller
Pure __________ involved a very large number of firms.
competition
The firm should produce in the short run as long as the price
exceeds the average variable cost
The quantity of a product supplied by a firm in pure competition should _____ as long as price rises.
increase
Which of the following best describes the situation of a price-taking firm? A price-taking firm is one of a ______ number of firms producing a product that is identical to that of every other firm in the industry and providing ______ of total market supply.
large; only a fraction
The change in total revenue that results from selling one more unit of output is called ________ revenue.
marginal
From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit.
normal
Total revenue equals ______ times ______.
price; quantity
Changes in __________ and changes in prices of variable inputs alter costs and shift the marginal cost or short run supply curve.
technology
When an industry is purely competitive, price can be substituted for marginal revenue in the MR = MC rule because
the demand curve is perfectly elastic and the price is constant regardless of the quantity demanded, so MR is constant and equal to price
The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because when this is true
the last unit produced adds more to revenue than costs, and its production must necessarily increase profits or reduce losses
Multiplying product price by output reveals which of the following?
total revenue
Consider the statement: "Even if a firm is losing money, it may be better to stay in business in the short run." This statement is
true, if the loss is less than the fixed cost
If price is below a firm's minimum average _______ cost, the firm will not operate.
variable
A firm should always stop producing if its average ______ cost is ______ price.
variable; greater than
