Econ Mid 2

For a perfectly competitive firm, profit is maximized at the output level where i. total revenue exceeds total cost by the largest amount. ii. marginal revenue equals marginal cost. iii. price equals marginal cost.

i, ii, and iii

In part, perfect competition arises if i. each firm's minimum efficient scale is large relative to demand. ii. each firm produces a good or service identical to those produced by its many competitors. iii. there are significant barriers to entry.

ii only

In the long run, a firm in a perfectly competitive market will

make zero economic profit, so that its owners earn a normal profit.

In a perfectly competitive industry, when a firm is producing so that its total revenue equals its total cost, the firm is

making zero economic profit

A firm that is a price taker face

many other firms produce identical pro

A firm in perfect competition is a price taker because

many other firms produce identical products

The total product curve shows the relationship between total product and

quantity of labor

When new firms enter a perfectly competitive market, the market supply curve shifts ________ and the price ________.

rightward; falls

A perfectly competitive firm

sells a product that has perfect substitutes

If a business owner decided to expand her business but rather than borrowing money from a bank used her own funds, then

she would forego the opportunity to earn interest on the money.

When new firms enter the perfectly competitive Miami bagel market, the market

supply curve shifts rightward

Marginal cost equal

the change in total cost that results from a one-unit increase in output.

A firm's marginal revenue is

the change in total revenue that results from a one-unit increase in the quantity sold.

Total cost includes

the cost of both variable and fixed resources

The law of decreasing returns states that as a firm uses more of a

variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases.

Increasing marginal returns to labor

are the result of specialization and division of labor in the production process.

In the long run, perfectly competitive firms produce at the output level that has the minimum

average total cost

A perfectly competitive firm will shut down when the price is just below the minimum point on the

average variable cost curve

When a firm adopts new technology, generally its

cost curves shift downward.

A perfectly competitive firm is producing at the quantity where marginal cost is $6 and average total cost is $4. The price of the good is $5. To maximize its profit, this firm should

decrease its output.

The short run is the time frame

during which the quantities of some resources are fixed.

In the long run, new firms enter a perfectly competitive market when

economic profit is greater than zero.

In a perfectly competitive market, a(n) ________ occurs because _____

efficient outcome; total surplus is maximized

Decreasing marginal returns

affect all firms, but at different production levels.

In the long run, a perfectly competitive firm will

make zero economic profit

A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's total cost?

$1,000

A perfectly competitive firm is producing 50 units of output, which it sells at the market price of $23 per unit. The firm's average total cost is $20. What is the firm's total revenue?

$1,150

Perfect competition ________ an efficient outcome because _____

achieves; total surplus is maximized achieves; marginal benefit equals marginal cost

At the Punjab Bakery, two workers can decorate 14 cakes in an hour and three workers can decorate 18 cakes in an hour. The marginal product of the third worker is

4 cakes, and the average product for three workers is 6 cakes.

What is the difference between perfect competition and monopolistic competition?

In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.

A perfectly competitive firm will maximize profit when the quantity produced is such that the

The firm's marginal revenue is equal to its marginal cost

Which of the following is the best example of a perfectly competitive market?

farming

If a perfectly competitive firm finds that the price exceeds its ATC, then the firm

is making an economic profit.

The primary goal of a business firm is to

maximize profit

In the short run, a perfectly competitive firm ________ make an economic profit and ________ incur an economic loss

might; might

When firms in a perfectly competitive market are earning an economic profit, in the long run

new firms will enter the market

A monopoly occurs when

one firm sells a good that has no close substitutes and a barrier blocks entry for other firms

In the long run, existing firms exit a perfectly competitive market

only if they incur an economic loss.

In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?

only perfect competition

When an economist uses the term "cost" referring to a firm, the economist refers to the

opportunity cost of producing a good or service, which includes both implicit and explicit cost.

A firm that is a price taker faces

perfectly elastic demand curve

The long run is defined as

the period of time when all resources are variable

If a perfectly competitive firm raised the price of its product

the quantity of output it sells decreases to zero.

The U-shaped average total cost curve is

the result of average fixed cost falling and decreasing marginal returns as output increases.

Normal profit is

the return to entrepreneurship.

If a struggling perfectly competitive furniture store in Detroit shuts down, it incurs an economic loss equal to its

total fixed cost

The cost that does NOT change as output changes is

total fixed cost

The marginal product of labor equals the change in ________ from a one-unit increase in the quantity of labor.

total product

To maximize its profit, in the short run a perfectly competitive firm decides

what quantity of output to produce.

If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue

will also be $5