Ch 15 Perfect Competition - Assignment Essays

question

perfect competition

answer

-a market in which there are many firms, each selling an identical product
-many buyers
-no barriers to the entry of new firms into the industry; no advantage to established firms
-buyers and sellers are well informed about prices

question

monopoly

answer

a market in which one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms

question

monopolistic competition

answer

a market in which a large number of firms compete by making similar but slightly different products

question

oligopoly

answer

a market in which a small number of interdependent firms compete

question

the four market types

answer

-perfect competition
-monopoly
-monopolistic competition
-oligopoly

question

perfect competition arise when

answer

-the market demand for the product is large relative to the output of a single producer
-when economies of scale are absent so the efficient scale of each firm is small

question

examples of local monopolies in some countries

answer

-electricity
-water supplies
-gas

question

monopolistic competition reminds us that

answer

each firm has a monopoly on a particular brand of show but the firms compete with each other

question

examples of monopolistic competition

answer

running shoes: Nike, Reebok, Fila, New Balance, etc.

question

examples of oligopoly

answer

airplane manufacture

question

a firm's objective

answer

to maximize economic profit

question

economic profit is equal to

answer

total revenue minus the total cost of production

question

normal profit

answer

the return that the firm's entrepreneur can obtain on average

question

in the short run, a firm achieves its objective by

answer

deciding the quantity to produce

question

in the long run, a firm achieves its objective by

answer

deciding whether to enter or exit a market

question

price taker

answer

a firm that cannot influence the price of the good or service that it produces (e.g., perfect competitions)

question

price takers experience what kind of elasticity in demand?

answer

perfectly elastic demand because all other companies in the market in question are perfect substitutes of each other

question

marginal revenue

answer

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

question

in perfect competition, what determines the price?

answer

market demand and market supply

question

total revenue equals

answer

the given price multiplied by the quantity sold

question

marginal revenue equals price

answer

the relationship of marginal revenue and price in perfect competition

question

as output increases,

answer

total revenue and total cost increase

question

because of decreasing marginal returns,

answer

total cost eventually increases faster than total revenue

question

one way to find the profit-maximizing output is to

answer

use a firm's total revenue and total cost curves

question

profit is maximized at the output level at which

answer

total revenue exceeds total cost by the largest amount

question

break-even points

answer

points at which total cost equals total revenue and economic profit is zero

question

the profit curve is at its highest when

answer

the vertical distance between the Total Revenue and Total Cost curves is at greatest

question

another way to fid the profit-maximizing output (other than the output level at which total revenue exceeds total cost by the largest amount) is to

answer

use marginal analysis

question

marginal analysis compares

answer

marginal revenue with marginal cost

question

as output increases, marginal revenue and marginal cost are

answer

marginal revenue is constant but marginal cost eventually increases

question

if marginal revenue exceeds marginal cost (MR>MC), then

answer

-the revenue from selling one more unit exceeds the cost of producing that unit
-an increase in output increases economic profit

question

if marginal revenue is less than marginal cost (MR<MR), then

answer

-the revenue from selling one more unit is less than the cost of producing that unit
-a decrease in output increases economic profit

question

if marginal revenue equals marginal cost (MR=MC), then

answer

-the revenue from selling one more unit equals the cost incurred to product that unit
-economic profit is maximized and either an increase or decrease in output decreases economic profit

question

quantity supplied

answer

a firm's profit-maximizing output

question

other things remaining the same, the higher the price of a good,

answer

the greater is the quantity supplied of that good

question

if a firm incurs an economic loss that it believes is permanent and sees no prospect of ending, the firm

answer

exits the market

question

if a firm incurs an economic loss that it believes is temporary, the firm

answer

remains int he market, but it might temporarily shut down

question

to decide whether to produce or to shut down, the firm compares the loss it would incur in two situations

answer

-loss when shut down
-loss when producing

question

if the firm shuts down temporarily, what happens to revenue and variable costs

answer

no revenue and incurs no variable costs (loss when shut down)

question

if a firm produces an output, what happens to revenue and variable costs

answer

it receives revenue and incurs both fixed costs and variable costs (loss when producing)

question

shutdown point

answer

the point at which price equals minimum average variable cost and the quantity produced is that at which average variable cost is at its minimum

question

if total revenue just equals total variable cost,

answer

a firm is indifferent between producing and shutting down

question

a perfectly competitive firm's short-run supply curve shows

answer

how the firm's profit-maximizing output varies as the price varies, other things remaining the same

question

a firm's short-run supply curve is based on

answer

the marginal analysis and shutdown decision

question

if the price is above minimum average variable cost,

answer

the firm maximizes profit by producing the output at which marginal cost equals marginal revenue, which also equals price

question

if price equals minimum average variable cost,

answer

the firm maximizes profit (minimizes loss) by either producing the quantity at the shutdown point or shutting down and producing no output

question

if the price is below minimum average variable cost,

answer

the firm shuts down and produces no output

question

at the prices that exceed minimum average variable cost,

answer

the supply curve is the same as the marginal cost curve

question

at prices below minimum average variable cost,

answer

the firm shuts down and produces nothing; its supply curve runs along the vertical axis

1 of 49

question

perfect competition

answer

question

monopoly

answer

a market in which one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms

question

monopolistic competition

answer

a market in which a large number of firms compete by making similar but slightly different products

question

oligopoly

answer

a market in which a small number of interdependent firms compete

question

the four market types

answer

-perfect competition
-monopoly
-monopolistic competition
-oligopoly

question

perfect competition arise when

answer

-the market demand for the product is large relative to the output of a single producer
-when economies of scale are absent so the efficient scale of each firm is small

question

examples of local monopolies in some countries

answer

-electricity
-water supplies
-gas

question

monopolistic competition reminds us that

answer

each firm has a monopoly on a particular brand of show but the firms compete with each other

question

examples of monopolistic competition

answer

running shoes: Nike, Reebok, Fila, New Balance, etc.

question

examples of oligopoly

answer

airplane manufacture

question

a firm's objective

answer

to maximize economic profit

question

economic profit is equal to

answer

total revenue minus the total cost of production

question

normal profit

answer

the return that the firm's entrepreneur can obtain on average

question

in the short run, a firm achieves its objective by

answer

deciding the quantity to produce

question

in the long run, a firm achieves its objective by

answer

deciding whether to enter or exit a market

question

price taker

answer

a firm that cannot influence the price of the good or service that it produces (e.g., perfect competitions)

question

price takers experience what kind of elasticity in demand?

answer

perfectly elastic demand because all other companies in the market in question are perfect substitutes of each other

question

marginal revenue

answer

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

question

in perfect competition, what determines the price?

answer

market demand and market supply

question

total revenue equals

answer

the given price multiplied by the quantity sold

question

marginal revenue equals price

answer

the relationship of marginal revenue and price in perfect competition

question

as output increases,

answer

total revenue and total cost increase

question

because of decreasing marginal returns,

answer

total cost eventually increases faster than total revenue

question

one way to find the profit-maximizing output is to

answer

use a firm's total revenue and total cost curves

question

profit is maximized at the output level at which

answer

total revenue exceeds total cost by the largest amount

question

break-even points

answer

points at which total cost equals total revenue and economic profit is zero

question

the profit curve is at its highest when

answer

the vertical distance between the Total Revenue and Total Cost curves is at greatest

question

another way to fid the profit-maximizing output (other than the output level at which total revenue exceeds total cost by the largest amount) is to

answer

use marginal analysis

question

marginal analysis compares

answer

marginal revenue with marginal cost

question

as output increases, marginal revenue and marginal cost are

answer

marginal revenue is constant but marginal cost eventually increases

question

if marginal revenue exceeds marginal cost (MR>MC), then

answer

-the revenue from selling one more unit exceeds the cost of producing that unit
-an increase in output increases economic profit

question

if marginal revenue is less than marginal cost (MR<MR), then

answer

-the revenue from selling one more unit is less than the cost of producing that unit
-a decrease in output increases economic profit

question

if marginal revenue equals marginal cost (MR=MC), then

answer

-the revenue from selling one more unit equals the cost incurred to product that unit
-economic profit is maximized and either an increase or decrease in output decreases economic profit

question

quantity supplied

answer

a firm's profit-maximizing output

question

other things remaining the same, the higher the price of a good,

answer

the greater is the quantity supplied of that good

question

if a firm incurs an economic loss that it believes is permanent and sees no prospect of ending, the firm

answer

exits the market

question

if a firm incurs an economic loss that it believes is temporary, the firm

answer

remains int he market, but it might temporarily shut down

question

to decide whether to produce or to shut down, the firm compares the loss it would incur in two situations

answer

-loss when shut down
-loss when producing

question

if the firm shuts down temporarily, what happens to revenue and variable costs

answer

no revenue and incurs no variable costs (loss when shut down)

question

if a firm produces an output, what happens to revenue and variable costs

answer

it receives revenue and incurs both fixed costs and variable costs (loss when producing)

question

shutdown point

answer

the point at which price equals minimum average variable cost and the quantity produced is that at which average variable cost is at its minimum

question

if total revenue just equals total variable cost,

answer

a firm is indifferent between producing and shutting down

question

a perfectly competitive firm's short-run supply curve shows

answer

how the firm's profit-maximizing output varies as the price varies, other things remaining the same

question

a firm's short-run supply curve is based on

answer

the marginal analysis and shutdown decision

question

if the price is above minimum average variable cost,

answer

the firm maximizes profit by producing the output at which marginal cost equals marginal revenue, which also equals price

question

if price equals minimum average variable cost,

answer

the firm maximizes profit (minimizes loss) by either producing the quantity at the shutdown point or shutting down and producing no output

question

if the price is below minimum average variable cost,

answer

the firm shuts down and produces no output

question

at the prices that exceed minimum average variable cost,

answer

the supply curve is the same as the marginal cost curve

question

at prices below minimum average variable cost,

answer

the firm shuts down and produces nothing; its supply curve runs along the vertical axis

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