econ chapter 13
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 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 $
5000
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
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
Which of the following are examples of standardized goods?
Gold Oil Copper
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.
Average revenue is
PxQ/Q
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.
A market in which fully informed, price-taking buyers and sellers easily trade a standardized good or service is called
a perfectly competitive market
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 face low (or zero) transaction costs. sellers face low (or zero) transaction costs.
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
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.
In the long run,
economics profits fall to zero
When there are economic profits in a market, _____.
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
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
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.
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.
Over time, average total cost may change because
innovative firms use new technologies that enable them to produce goods at lower cost.
When goods are standardized, they are
interchangeable
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
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 $___________
loss; $5000
More firms will enter a market if the existing firms are
making a profit.
The ability to noticeably affect market prices implies
market power.
A perfectly competitive firm will make profits as long as the _____.
market price is above the firm's average total cost
A firm should keep producing for as long as marginal revenue is __________ than marginal cost.
more
The short run market supply curve is upward sloping because each firm supplies
more as the price rises.
The average total cost reflects economic costs which include explicit costs and _____ costs.
opportunity
Producers are able to sell as much as they want without affecting the market price in a
perfectly competitive market.
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
A firm could be making more money by pursuing other opportunities if
price falls below ATC.
Total revenue is
price × quantity.
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
prices
The only choice that a perfectly competitive firm can make to affect its profits, is to decide the
quantity to produce.
In a perfectly competitive market, producers are able to
sell as much as they want without affecting the market price.
Many natural resources can be considered _____ goods.
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.
The short-run market supply curve is the _____.
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
In a perfectly competitive market, _____.
the market price is the same thing as the firm's marginal revenue and average revenue
As more firms enter the market,
the short-run market supply curve shifts right
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.
When buyers and sellers know exactly what is being traded,
there are no information asymmetries. buyers and sellers have the same information.
The four defining characteristics of a competitive market are that
there are no transaction costs. goods are standardized. buyers and sellers can't bargain over prices. buyers and sellers have full information.
In a perfectly competitive market, _____.
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.
Price × quantity is equal to
total revenue
Average revenue is
total revenue / quantity sold
Average revenue is
total revenue divided by the quantity sold
The decision about whether to shut down production in the short run depends entirely on the _____ costs of production.
variable
Producers are able to charge different prices
when goods are differentiated.
When firms experience short-run losses, firms will continue exiting the market causing the price to rise until economic losses are reduced to
zero