Perfect Competition(Short Run)
When it shuts down temporarily in the short run, a perfectly competitive firm
still incurs its total fixed costs.
In a perfectly competitive market, homogeneity means that firms must charge the same market price for the goods or the services they produce because there are hundreds of other perfectly good:
substitutes.
A constant-cost industry is an industry in which:
the firms' cost structures do not vary with changes in production.
In decreasing-cost industries, the cost of production falls with expanded output and:
the long-run market supply curve slopes downward.
The long-run supply curve represents:
the long-run relationship between the price and the quantity supplied.
Profit equals total __ minus total __.
revenue - cost
Suppose Carl's Candies sells 100 boxes of candy for $4 each. The total fixed cost of the 100 boxes is $100 and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a profit per unit of:
$1.50.
Suppose Carl's Candies sells 100 boxes of candy for $5 each. The total fixed cost of the 100 boxes is $100 and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a total profit of:
$250.
Assuming the market for office paper is perfectly competitive, what would the long-run market price and output level be in the office paper market?
$30; 60 cases Reason: To find the long-run market price and output level, find where MC equals the lowest ATC. This would occur at a price of $30 and a quantity of 60 cases of office paper.
How many tomatoes will the farmer produce in the market above to maximize profits?
100 pounds Reason: To determine profit maximization, the producer should produce where MR = MC. In the market shown, that would be at 100 pounds.
In the ________ (short/long) run, when at least one input is fixed, as the price rises so does the level of output supplied.
Blank 1: short
The decision to shut down temporarily is a ________ -run decision, while the decision to exit an industry can be made only in the ________ run. (Enter one word for the blank.)
Blank 1: short Blank 2: long
As more firms enter the industry, the ________ curve will shift rightward.
Blank 1: supply
In a perfectly competitive market, the price the firm should charge is the market price because the firm is a price _________.
Blank 1: taker
In a constant-cost, perfectly competitive industry, what happens to price in the short-run if the market demand increases?
The price increases. Reason: If market demand increase in a constant-cost industry, the demand shifts to the right, causing the market price to increase.
Which of the following markets would most closely resemble a perfectly competitive market?
Tomatoes Reason: Tomatoes are a standardized product, produced by many farmers. The farmers are price takers, and there are no significant barriers to entry. Therefore, the market for tomatoes can be reasonably described as perfectly competitive.
Which of the following markets would most closely resemble a perfectly competitive market?(Multi)
Wheat Cucumbers Chlorine Reason: These markets have a standardized product, many producers, producers are price takers, and there are no significant barriers to entry.
Marginal revenue is the:
additional revenue associated with the sale of an additional unit of output.
The marginal cost is the:
extra or additional cost associated with the production of an additional unit of output.
In perfect competition,:
firms cannot influence the market price with production decisions.
When a firm shuts down in the short run, it must still pay the _____ costs.
fixed
The market condition in which firms do not face incentives to enter or exit the market and firms earn a normal profit is known as:
long-run equilibrium.
The long-run relationship between the price and the quantity supplied is given by the:
long-run supply curve.
If the market price is below the average variable cost, the firm is:
losing money in the short run and should shut down.
A market structure characterized by the interaction of large numbers of buyers and sellers in which the sellers produce a standardized or homogeneous product is known as:
perfect competition.
Allocative efficiency is:
producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost.
In the short run, as the price rises,:
quantity supplied rises
Changes in the variable costs of resources will affect:
the marginal costs faced by firms.
The price of a good times the number of units sold gives us:
total revenue.
Profit equals ___ revenue minus ___ cost.
total; total
Normal profit is also known as zero ________ profit.
Blank 1: economic
Refer to the two graphs above the answer the following question. Assume the market for office paper is perfectly competitive. What is the profit maximizing quantity and profit for the office paper firm?
40 cases, Profit = −$600 Reason: To find the profit-maximizing quantity, set market price = MC (Q = 40). To find profit, use the following formula (P − ATC)*Q = (20 − 35)(40) = -$600
Use the table to answer the question. If the MR = $5.00, what is the profit-maximizing quantity and profit amount?
90 pounds, Profit = $81
Assuming the market for office paper is perfectly competitive, the profit level for the firm in the long run would be $________. (Only enter amount; the dollar sign has been provided for you.)
Blank 1: $0, 0, or zero
In a perfectly competitive market, a single firm is a price taker and therefore can only charge the ______ price.
market
The demand for a perfectly competitive firm's product is a horizontal line originating at the:
market price.
The amount of revenue produced per unit of an output sold is the ________ revenue.
Blank 1: average
____equals the total revenue minus the total cost.
Profit
The firm's short-run supply curve is a(n) __-sloping curve that begins at __ average variable cost.
upward; minimum
The firm's short-run supply curve is a(n) _____-sloping curve that begins at _____ average variable cost.
upward; minimum
Productive efficiency is:
using the fewest resources possible to produce a good or a service.
In a constant-cost, perfectly competitive industry, what is the shape of the long-run supply curve?
Horizontal Reason: In a constant-cost industry, with entry and exit, the long-run supply curve is horizontal
In a perfectly competitive market, assume the market price is $10 per unit, and the profit-maximizing quantity is 45 units. If the ATC at 45 units is $8, the profit/loss amount at the profit-maximizing quantity is $________.
Blank 1: $90 or 90
The extra or additional cost associated with the production of an additional unit of output is the ________ cost.
Blank 1: marginal
Total ________ equals price times quantity.
Blank 1: revenue
Profit equals the total ________ minus the total ________.
Blank 1: revenue Blank 2: cost
Price takers are firms that take or accept the ________ price and have no ability to influence that price.
Blank 1: market or equilibrium
In a perfectly competitive market, we assume the products are __ in the minds of consumers.
identical
At the shutdown point, the price is _____ the average variable cost.
less than
Extra or additional revenue associated with the production of an additional unit of output is the:
marginal revenue.
Firms that take or accept the market price and have no ability to influence that price are known as:
price takers.
If labor costs ________ (increase/decrease), a firm's marginal cost curve will shift to the left.
Blank 1: increase
Use the graph of a perfectly competitive market above to answer the question. If the market for office paper is perfectly competitive, the price for a typical perfectly competitive firm is $________. (Enter a number; the dollar sign has been provided for you.)
Blank 1: $20 or 20
If the market above is perfectly competitive and the MR = $2, the profit/loss amount at the profit-maximizing quantity is ________. (Add a negative sign for loss).
Blank 1: -$120 or -120
Find the new market supply by ________ the short-run supply curves for all the firms in the market. (Please use one word for the blank)
Blank 1: adding or summing
Identify the characteristics of a perfectly competitive market. (Select all that apply.)
Easy entry and exit for firms A large number of buyers and sellers Producers who are price takers A standardized product
The ________ competition model is the most efficient type of market and is characterized by both productive and allocative efficiency.
Blank 1: perfect or perfectly
Total revenue minus the _________ and ________ costs of production is economic profit.
Blank 1: explicit or fixed Blank 2: implicit or variable
Profit maximization implies that perfectly competitive firms should expand production up to the point where marginal revenue ________ (equals/exceeds) marginal cost. (Use one word for the blank.)
Blank 1: equals
Because the marginal revenue faced by the firm is equal to price, ________ revenue is also equal to price.
Blank 1: average
At the shutdown point, the price is equal to the average ________ cost.
Blank 1: variable
The total revenue divided by the number of units of a product sold is the ________ revenue. (Remember enter only one word in the blank.)
Blank 1: average
Total profit equals (__________ revenue minus _____ total cost) multiplied by output
Blank 1: average Blank 2: average
Perfect ________ is a market structure characterized by the interaction of large numbers of buyers and sellers in which the sellers produce a standardized or homogeneous product.
Blank 1: competition
Profit ________ (maximization/minimization) implies that perfectly competitive firms should expand production up to the point where marginal revenue equals marginal cost. (Choose one of the options given in brackets beside the blank.)
Blank 1: maximization
In a perfectly competitive market, assume the market price is $5 per unit and the profit-maximizing quantity is 70 units. If the ATC at 70 units is $8, what is the profit/loss amount at the profit-maximizing quantity?
−$210
A(n) ________ -cost industry is an industry in which the firms' cost structures do not vary with changes in production.
Blank 1: constant
In a(n) ________ -cost industry, the long-run supply curve is a horizontal line originating at the market ________ that generates normal profits for the firms in the industry.
Blank 1: constant Blank 2: price
In a perfectly competitive market, we assume the product is identical in the minds of _________.
Blank 1: consumers, buyers, customers, consumer, buyer, or customer
As the market price decreases, all else held constant, a profit-maximizing firm can ________ (increase/decrease) its production.
Blank 1: decrease or lower
In _________ -cost industries, the cost of production ________ with expanded output and the long-run market supply curve slopes downward.
Blank 1: decreasing Blank 2: decreases, drops, falls, or reduces
Total revenue minus the implicit and explicit costs of production is ________ profit.
Blank 1: economic
Total revenue minus the implicit and explicit costs of production is ________ profit. (Use one word for the blank.)
Blank 1: economic
In the presence of _________ profits, firms enter until the market reaches the point at which the firms are generating a(n) ________ profit; then entry stops and the market settles into its ________ -run equilibrium. (Provide your answers in one word.)
Blank 1: economic or positive Blank 2: normal Blank 3: long
Economic profit creates an incentive for other perfectly competitive firms to ________ the market.
Blank 1: enter or join
The level of profit that occurs when the total revenue is ________ to the total cost is known as normal profit.
Blank 1: equal, =, or identical
Total revenue minus the ________ and ________ costs of production is economic profit.
Blank 1: explicit Blank 2: implicit
In a constant-cost industry, the long-run supply curve is a(n) ________ line originating at the market price that generates ________ profits for the firms in the industry. (Remember enter only one word per blank.)
Blank 1: flat or horizontal Blank 2: normal
In a perfectly competitive market, we assume the product is ________ (homogeneous/heterogeneous) in the minds of consumers.
Blank 1: homogeneous
The demand curve for a perfectly competitive firm's product is a ________ (vertical/horizontal) line originating at the market price.
Blank 1: horizontal
The demand for a perfectly competitive firm's product is a(n) ________ line originating at the market price.
Blank 1: horizontal or flat
As the market price ________ (increases/decreases), all else held constant, a profit-maximizing firm can afford to expand its production.
Blank 1: increases
As the market price of a good ________ , all else held constant, a profit-maximizing firm that produces the good can afford to expand its production.
Blank 1: increases, rises, grows, expands, increase, or rise
In ________ -cost industries, the cost of production ________ with expanded output and the long-run market supply curve slopes upward.
Blank 1: increasing Blank 2: increases, increase, rises, rise, or expands
When the total revenue is ________ than the total cost, the level of profit that occurs is a loss. (Enter one word in the blank.)
Blank 1: less, smaller, lower, or lesser
The market condition in which firms do not face incentives to enter or exit the market and firms earn a normal profit is known as ________ -run equilibrium. (Remember enter only one word in the blank.)
Blank 1: long
When the total revenue earned by a firm is less than the total cost of production the firm faces a(n) ________ (one word).
Blank 1: loss or deficit
Because the ________ revenue faced by the firm is equal to price, average revenue is also constant and equal to price.
Blank 1: marginal
In the short run, the supply curve for a firm is the ________ cost curve above or equal to the average ________ cost curve.
Blank 1: marginal Blank 2: variable
A(n) ________ profit simply indicates that the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or to compete in a different industry. (Provide the answer in one word.)
Blank 1: normal
Because perfectly competitive firms are price takers, the marginal revenue is equal to the market ________.
Blank 1: price
Firms that take or accept the market price and have no ability to influence that price are ________ takers.
Blank 1: price
In the short run, as the ________ rises so does the level of output supplied. (Remember enter only one word in the blank.)
Blank 1: price
The demand for a perfectly competitive firm's product is a horizontal line originating at the market _________.
Blank 1: price
The demand for a perfectly competitive firm's product is a horizontal line originating at the market ________ . (Use one word for the blank.)
Blank 1: price or value
A constant-cost industry is an industry in which the firms' cost structures do not vary with changes in ________.
Blank 1: production, output, or quantity
In the long run, perfectly competitive firms achieve ________ and ________ efficiency. (Enter one word in each blank.)
Blank 1: productive Blank 2: allocative
In the long run, perfectly competitive firms achieve ________ efficiency by producing at the lowest cost and ________ efficiency by producing what consumers want.
Blank 1: productive Blank 2: allocative
All firms maximize ________ by producing the quantity of output at which the marginal revenue is equal to the marginal cost.
Blank 1: profit or profits
Profit equals (average ________ minus average total _______) multiplied by output.
Blank 1: revenue Blank 2: cost
For a firm, profit equals total ________ minus total ________ . (Enter one word in each blank.)
Blank 1: revenue Blank 2: cost or costs
Because perfectly competitive firms are price ________ , the marginal revenue is equal to the market price.
Blank 1: takers
In increasing-cost industries, the cost of production rises with expanded output and the long-run market supply curve slopes ________.
Blank 1: upward, up, or upwards
The short-run supply curve starts at the minimum average ________ cost
Blank 1: variable
The short-run supply curve starts at the minimum average ________ cost.
Blank 1: variable
If the market price is above or equal to the average ________ cost, but below the average ________ cost the firm should keep producing in the ________ run even though it does so at a(n) ________.
Blank 1: variable Blank 2: total Blank 3: short Blank 4: loss
A company can break even and meet operating costs without a loss when it earns ________ economic profit.
Blank 1: zero or normal
Use the table to answer the following question. Which of the following is true about the market for kale if we assume the market is perfectly competitive?
MR = AR = Firm Demand Reason: In a perfectly competitive market, MR = AR = Firm Demand. You can also calculate MR by dividing the change in total revenue by the change in quantity. You can calculate AR by dividing TR by the quantity. In both cases, this will equal $2.
