Econ Chapter 8

Which statements are correct about perfect competition?

1) Firms are said to be in perfect competition when sellers and buyers have all relevant information to make rational decisions about the product being bought and sold. 2) Firms are said to be in perfect competition when many firms produce identical products.

Which statements are true about the shutdown point?

1) If the perfectly competitive firm can charge a price above the shutdown point, then the firm is at least covering its average variable costs. 2) If the firm is receiving a price below the price at the shutdown point, then the firm should shut down immediately.

Which statements are true about allocative efficiency?

1) In a perfectly competitive market, price will be equal to the marginal cost of production. 2) Allocative efficiency means that among the points on the production possibility frontier, the point that is chosen is socially preferred—at least in a particular and specific sense.

Which statement is true about firms in a perfectly competitive market?

A perfectly competitive firm must be a very small player in the overall market, so that it can increase or decrease output without noticeably affecting the overall quantity supplied and price in the market.

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its

allocative efficiency

If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses.

average cost

In the ________, the perfectly competitive firm will react to profits by __________________________ .

long run; increasing its production

In economics, the term "shutdown point" refers to the point where the

marginal cost curve crosses the average variable cost curve.

Refer to the diagram above. In this instance, at the range of output represented at point b,

total costs exceed total revenues.

In order to produce 100 oatmeal cookies, GoodieCookieCo incurs an average total cost of $0.25 per cookie. The company's marginal cost is constant at $0.10 for all oatmeal cookies produced. The total cost to produce 50 oatmeal cookies is

$20

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce

Which is hypothetical when considering the concepts of productive and allocative efficiency over the long run?

Perfect competition

Given the data provided in the table below, what will the amount of profit be for production at quantity (Q) level 7?

-$10.00

Which statement is true about shifts in costs of production and marginal costs?

A shift in costs of production that increases marginal costs at all levels of output will shift Marginal Cost to the left, causing a perfectly competitive firm to reduce its level of output at any given market price.

Which is not a description of an industry within the context of the Long-Run Adjustment?

Fluctuating cost industry (as demand increases, the cost of production sometimes increases, while at other times decreases)

Which statement about the marginal revenue curve is not correct?

For a perfectly competitive firm, the marginal revenue (MR) curve is a vertical straight line because it is equal to the price of the good, which is determined by the market.

Refer to the diagram above. At the point marked m,

TR is exactly equal to TC, so profits equal zero.

A perfectly competitive industry is a

hypothetical extreme.

What happens in a perfectly competitive industry when economic profit is greater than zero?

new firms may enter the industry and all of the above

If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal?

12% of output

Which statement is correct?

In the short run, firms cannot change the usage of fixed inputs, while in the long run, the firm can adjust all factors of production.

Why are some producers forced to sell their products at the prevailing market price?

high degree of similarity to competitor's products

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

Given the data provided in the table below, what will the marginal cost equal for production at quantity (Q) level 4?

$4.00

Which are true for constant cost industries?

1) Firms can easily supply any quantity that consumers demand. 2) The supply curve is very elastic

Refer to the diagram above. In this instance, point e shown on the graph indicates

???? the point where profits will increase by increasing output

Which statement is not true about perfectly competitive firms?

In the long run, perfectly competitive firms will react to profits by decreasing production. CORRECT: In the long run, perfectly competitive firms will respond to losses by exiting the market. In the long run, perfectly competitive firms will respond to losses by reducing production. In the long run, perfectly competitive firms will react to profits by increasing production.

Which statement best describes productive and allocative efficiency?

When profit-maximizing firms in perfectly competitive markets combine with utility-maximizing consumers, the resulting quantities of outputs of goods and services demonstrate both productive and allocative efficiency.

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ .

accounting profit; excluding opportunity cost

If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits.

average

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs.

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

keep the business open in the short-run, but plan to go out of business in the long-run.

Under perfect competition, any profit-maximizing producer faces a market price equal to its

marginal costs

QUIZ: Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price.

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

price of competing products

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________ .

supply curve