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A market
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is that area in which buyers and sellers compete to affect a product price
May be an organized exchange
refers to a set of sellers and buyers whose actions affect a commodity's price
May be an organized exchange
refers to a set of sellers and buyers whose actions affect a commodity's price
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A perfectly competitive firm is a price
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taker
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Firms in perfect competition are often described as price
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takers
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Perfect competition is the term used to describe
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an industry in which numerous firms produce identical products
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The result that perfectly competitive firms produce at the lowest per-unit cost is derived from the assumptions of
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free entry and exit
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In a market with perfectly competitive firms, the market demand curve is usually ____ and the demand curve facing each individual firm ____.
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Downward sloping; horizontal
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A firm facing a horizontal demand curve
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Cannot affect the price it receives for its output
always produces at an output at which P=MR
Faces perfectly elastic demand for its product
always produces at an output at which P=MR
Faces perfectly elastic demand for its product
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What is the nature of the elasticity of the demand curve faced by perfectly competitive firm?
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perfectly elastic
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If the profit-maximizing firm depicted in Figure 10-1 is perfectly competitive, how much output should it produce?
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C
(c was in the middle of the Q and met on the horizontal demand and the upward sloping curve of MC)
(c was in the middle of the Q and met on the horizontal demand and the upward sloping curve of MC)
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A firm earns a profit of exactly zero at its optimal output level only if
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P=AC
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Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm. At its profit-maximizing output, the firm's total ____ is represented by area ____.
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Loss; ADEC
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Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm. In the short run, this firm would
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earn economic losses
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In the short run, perfectly competitive firms can
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Make an economic profit
break even
take a loss
break even
take a loss
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In Figure 10-3, the profit maximizing firm will operate at a level of
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OI.
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In Figure 10-3, the perfectly competitive firm is realizing a
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profit equal to ABDF
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In perfect competition, marginal revenue always equals
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price
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Figure 10-4 shows the industry's supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2). At S1, the firm is
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earning economic profit greater than zero.
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If a competitive firm's short run average cost curve lies above the price of the product, we can conclude that the firm
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is incurring losses
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A firm can stay in business while taking a loss in the short run as long as it covers its
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Variable costs
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A firm will shut down in the short run if
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P<AVC
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If a firm shuts down in the short run, its losses are equal to
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TFC
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Refer to Table 10-2. Which firm is better off staying in business in the short run?
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Firm C
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The short-run supply curve of the perfectly competitive firm is the firm's
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MC curve above the minimum point on the AVC curve.
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A firm in a perfectly competitive industry
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May choose a different output in the long run than in the short
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In the short run, the firm in Figure 10-8 will shut down if the price falls below
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$5
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Pure monopoly is defined as a
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one-firm industry.
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Pure monopoly
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has no close substitutes for its product.
is defined as having only one supplier.
exists when entry and survival of potential competitors is extremely unlikely.
is defined as having only one supplier.
exists when entry and survival of potential competitors is extremely unlikely.
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A market is not a pure monopoly if firms
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can enter it freely
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Which of the following is not a barrier to entry?
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survivor rights
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What is a key criterion involved in deciding a natural monopoly?
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Size of the firm relative to the total market demand for a product.
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A market structure in which only one firm has survived because of its economies of scale is called a
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natural monoply
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The marginal revenue curve for a monopolist is
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always below the demand curve.
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The Red Cross is virtually the only operator of blood banks in the United States. In Figure 11-1 are the demand and supply curves facing the Red Cross blood bank. If it were to operate like a profit-maximizing business, how many units of blood would it sell?
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OA
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The marginal revenue curve for a monopolist
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is always below its demand curve if the demand curve is downward sloping.
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In Figure 11-2, at what quantity would the monopolist maximize profit?
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A
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In Figure 11-2, at what quantity would the monopolist maximize profit?
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H
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A monopoly firm
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does not have a supply curve.
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A monopolist will operate where
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MR = MC and charge a price corresponding to demand at that level.
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Which of the following is true for a profit-maximizing competitive firm in the long run but not a monopolist?
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MC=P
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A monopolist maximizes profits by producing where which of the following occur?
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MC=MR
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Using the graph in Figure 11-3, the profit-maximizing monopolist will charge a price
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of more than $3.
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In Figure 11-3, one can tell from the graph that the monopolist will earn a positive profit only if
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One cannot tell from the information given.
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In Figure 11-3, which of the following is true, whether or not the monopolist is maximizing profits?
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MR<P
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In Figure 11-9, how much more than the long-run competitive price will the profit-maximizing monopolist charge?
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$3
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In Figure 11-9, how much more than the short-run competitive price will the profit-maximizing monopolist charge?
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$1
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What is true for monopoly that is not true for perfect competition?
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The firm and the industry are exactly the same entity.
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Identify the market structure characterized by many small firms selling somewhat different products.
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Monopolistic competition
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Which of the following characteristics of perfect competition does not apply in monopolistic competition?
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homogeneous products
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Monopolistic competitors and perfect competitors are alike in
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zero economic profit in the long run
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In the long run the prices charged by a firm in monopolistic competition will be
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equal to average cost, including the opportunity cost of capital.
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Unlike a perfectly competitive firm, a monopolistically competitive firm
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has a negatively sloped demand curve
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Everything else equal, the more rivals a firm has, the
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more elastic is its demand curve
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In Figure 12-1, for a monopolistically competitive firm, long-run equilibrium can occur only at the quantity indicated by which point?
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c
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In Figure 12-2, which of the graphs represents a monopolistic competitor in long-run equilibrium?
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3
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In Figure 12-2, which of the graphs represents a firm that is a sales revenue maximizer?
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1
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A firm in a monopolistically competitive market makes no economic profit in the long run because
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long-run price will be equal to long run average cost.
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The monopolistically competitive firm in short-run equilibrium
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has a marginal revenue curve which lies below its demand curve.
faces a downward-sloping demand curve.
maximizes profit where MR = MC
faces a downward-sloping demand curve.
maximizes profit where MR = MC
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