Intro to MicroEcon 247 Unit 7 (chapter 14)

Which statement best applies to a perfectly competitive firm with a positive economic profit?

It will attract new firms into the industry in the long run.

What is a characteristic of a perfectly competitive market?

Marginal revenue equals average revenue.

Which one of the following is NOT a condition for a firm's long-run decision to exit the market?

P < TC

In the short run, what is the level of output a profit-maximizing price taker should choose?

P = MC, but only if P ≥ AVC

In a competitive market where MR = MC, firms will always maximize profits.

True

Marginal revenue for the competitive firm is the additional revenue resulting from the sale of one more unit of output, and is equal to the market price.

True

Price, marginal revenue, and average revenue are identical for a competitive firm.

True

The long-run equilibrium of a competitive market with free entry and exit has firms operating at their efficient scale, that is, the minimum average total cost.

True

Mr. Smith's apple farm operates in a competitive market. If Smith reduces production by 15 percent, which consequence should ensue?

no change in his prices

If prices tend to increase as industry output increases in the long run, which term best describes the long-run supply curve?

slopes upward

What is a short-run supply curve for a perfectly competitive firm?

the portion of the firm's marginal-cost curve that lies above the average-variable-cost curve

What is the industry supply curve?

the sum of firms' marginal-cost curves

A competitive firm will produce the output that allows it to maximize profits where total revenue is a maximum.

False

A firm will shut down if the revenue it would get from producing is less than its total cost of production.

False

The demand curve for a purely competitive industry is perfectly elastic, but the demand curve faced by the individual firm in a competitive market is downward sloping.

False

Which of the following is the condition for a perfectly competitive market?

There are many sellers and buyers, and the products produced in the market are similar.

What is a sunk cost?

a cost that has already been committed and cannot be recovered

When a perfectly competitive firm produces another unit of output, what equals its marginal revenue?

price