question
Consider the following data: equilibrium price = $10, quantity of output produced = 100 units, average total cost = $13, and average variable cost = $7. What will the firm do and why?
answer
Continue to produce in the short run, because price is greater than average variable cost.
question
When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost, it naturally
answer
produces the quantity of output at which marginal cost equals price, since for the perfectly competitive firm price equals marginal revenue.
question
Which of the following is not a characteristic of perfect competition?
answer
...
question
A perfectly competitive firm should shut down production in the short run if price is less than average fixed cost at the loss-minimizing level of output.
answer
False
question
The price charged by a perfectly competitive firm is determined by
answer
market demand and market supply, together.
question
In the theory of perfect competition, the assumption of easy entry into and exit from the market implies
answer
zero economic profits in the long run.
question
Equilibrium price is $8 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 150 units of output. At 150 units, ATC is $11, and AVC is $10. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ and total variable cost equals __________ for this firm.
answer
shut down; $150; $1,500
question
If a firm is a price taker, its demand curve is
answer
...
question
The price at which a perfectly competitive firm sells its product is determined by
answer
all sellers and buyers of the product.
question
Output (Q)
Total Revenue
Total Cost
0
$0
$10
1
25
40
2
50
60
3
75
70
4
100
75
5
125
85
6
150
110
7
175
140
8
200
180
Refer to Exhibit 2. Is the firm depicted here a perfectly competitive firm?
Total Revenue
Total Cost
0
$0
$10
1
25
40
2
50
60
3
75
70
4
100
75
5
125
85
6
150
110
7
175
140
8
200
180
Refer to Exhibit 2. Is the firm depicted here a perfectly competitive firm?
answer
Yes, because marginal revenue is constant.
question
Perfectly competitive industries are
answer
...
question
If an industry is in long-run competitive equilibrium and experiences a decrease in demand, then as a result the equilibrium price will __________, which will cause the representative firm's __________ curve to shift downward and some firms will __________ the industry.
answer
fall; demand; exit
question
In the theory of perfect competition, the assumptions of many buyers and sellers, the production of a homogeneous product, and the possession of all relevant information by buyers and sellers imply that the perfectly competitive firm
answer
has a demand curve that is perfectly elastic.
question
In long-run equilibrium, the perfectly competitive firm earns __________ economic profits.
answer
zero
question
A perfectly competitive firm faces a __________ demand curve.
answer
...
question
Exhibit 23-1
(1)
(2)
(3)
Price
Quantity Sold
Marginal Revenue
$12
100
$12
101
(A)
$12
102
(B)
$12
103
(C)
$12
104
(D)
Refer to Exhibit 23-1. The data in this table are relevant to a perfectly competitive firm because
(1)
(2)
(3)
Price
Quantity Sold
Marginal Revenue
$12
100
$12
101
(A)
$12
102
(B)
$12
103
(C)
$12
104
(D)
Refer to Exhibit 23-1. The data in this table are relevant to a perfectly competitive firm because
answer
it doesn't have to lower price to sell additional units of the product.
question
Which of the assumptions below assures us that economic profit will be zero in long-run equilibrium for perfectly competitive firms?
answer
easy entry and exit
question
In the theory of perfect competition,
answer
...
question
For a perfectly competitive firm,
answer
the marginal revenue curve and the demand curve are the same.
question
In a perfectly competitive market, the market demand curve is perfectly elastic.
answer
False
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