Microeconomics Exam 2 part B Chapter 7- Dr.McClung
What are the Six assumptions of perfect competition?
1)Buyers and seller are numerous. 2) Firms produce a homogeneous product. 3)Free entry and exit. 4) Perfect information. 5)Firms are "Price takers". 6) Price= Marginal Revenue.
Long Run
A period in which ALL inputs are variable (can change).
Short Run
A period in which at least one input is fixed (Can't be changed).
Total Cost
ATC * q
"Perfect Subsitution" , one firm for another, is an example of ____ of perfect competition?
An Assumption
Economic loss
Business is not covering opportunity cost.
If rice is greater than average total cost the enter or exit?
Enter
If price is less than average total cost then exit or stay?
Exit
If profit is negative that means there is money being lost.
False, business is NOT covering opportunity cost.
Consumers can be fooled to think one firm is better than the other in the assumption of perfect competition, "perfect information".
False, consumers CANNOT be fooled in a perfect competition.
Where does supple come from?
Firm's attempts to profit max-- P=MC
The change in total revenue.
Marginal Revenue
The assumption of perfect competition, can firms fool consumers?
No because it's considered "Perfect Information".
If price is greater than average total cost then operate with loss or shutdown?
Operate with loss
If total revenue greater than variable cost, operate with loss or shutdown?
Operate with loss
Profit max. is to produce where price equals what in perfect competition?
P=MC
Firms produce a homogeneous product is an assumption of ____ Competition?
Perfect
Market price save $5, you sell $5. This an example of what assumption of perfect competition?
Price takers, They have to take market price.
Total revenue
Price times quantity
If price greater than the average variable cost then produce or shutdown?
Produce
If price is equal to average variable cost then produce or shutdown?
Produce
If price is less than average cost then operate with loss or shutdown?
Shutdown
If price is less than average variable cost then produce or shutdown?
Shutdown
If total revenue is less than variable cost then operate with loss or shutdown?
Shutdown
If price is equal to average total cost then exit or stay?
Stay
Profit equals...
Total Revenue minus Total Cost
"Price takers" do not have the ability to influence price as individuals. They have to take market price given. This is an assumption of perfect competition.
True
All firms will maximize profit or minimize losses if they produce by producing where MR=MC
True
In a perfect competition ONLY, price is equaled to marginal revenue.
True
In perfect competition total revenue equals price times quantity. In other words, Price=MR.
True
The assumption of perfect competition is that buyers and seller are numerous each of which are so small has to be ___ to affect ___ ___?
Unable; Market price
If a firms has an economic loss should they exit?
Yes
Is free entry and exit an assumption of perfect competition?
Yes
Does MR=MC=P?
Yes, but only in perfect competition.
