ECON Chapter 6 - Perfect Competition
The long run is best defined as:
a period of time sufficiently long that all factors of production are variable.
A price-taker faces a demand curve that is
horizontal at the market price.
The most important challenge facing a firm in a perfectly competitive market is deciding...
how much to produce.
A rational seller will sell another unit of output ...
if the cost of making another unit is less than the revenue gained from selling another unit.
According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively...
larger and larger quantities of the variable factors of production.
A seller's supply curve shows the seller's
opportunity cost of producing an additional unit of output at each quantity.
A firm's total profit equals
(Price − ATC) × Quantity
If a firm spends $400 to produce 20 units of output and spends $880 to produce 40 units, then between 20 and 40 units of output, the marginal cost of production is:
$24
Which of the following is a defining characteristic of all perfectly competitive markets?
All firms sell the same standardized product.
Which of the following best explains why you are more likely to see a poor person than a wealthy person picking up aluminum cans to sell?
The opportunity cost of picking up cans is higher for wealthy people than for poor people.
The short run is best defined as...
a period of time sufficiently short that at least one factor of production is fixed.
Denise sells lemonade in front of her house in the summer. Several other kids in Denise's neighborhood also run lemonade stands in the summer. The lemonade market in Denise's neighborhood is more likely to be perfectly competitive if
each lemonade stand sells the same kind of lemonade.
Suppose a profit-maximizing firm in a perfectly competitive market is earning an economic profit of $1,345. If the firm's fixed cost increases from $200 to $300, the firm will
earn a smaller profit.
In general, perfectly competitive firms maximize their profit by producing the level of output at which
marginal cost equals price.
The primary objective of most private firms is to
maximize profits
Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will ______ in the short run, and it will ______ in the long run.
not shut down; exit the industry
A profit-maximizing perfectly competitive firm must decide
only how much to produce, taking price as fixed.
Total revenue minus both explicit and implicit costs define a firm's
profit
Assume that each day a firm uses 13 employee-hours per day and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ______ of ______.
profit; $170
Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000th unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should
shut down.
Marginal cost is calculated as
the change in total cost divided by the change in output.
Average total cost is defined as
total cost divided by total output.
Average variable cost is defined as
variable cost divided by total output.
Last year, Amada grew fresh vegetables, which she sold at her local farmers market, but this year, Amada did not plant any vegetables and went to work at a bank instead. Which of the following best explains Amada's career change?
Amada's opportunity costs of gardening exceeded Amada's opportunity costs of working at the bank.