question
All firms in a perfectly competitive industry sell _____ products.
answer
Homogeneous
question
The demand curve facing the perfectly competitive firm is _____ while demand facing the entire industry is _____.
answer
Perfectly elastic, relatively elastic
question
The two decisions that a manager in a price-taking firm in a competitive industry must make are _____.
answer
Whether to product and if so, how much
question
Profit margin for a firm is _____.
answer
Price minus average total costs
question
Marginal revenue will be equal to _____ when profit is maximized.
answer
Marginal cost
question
Select all that apply: The characteristics of perfect competition include ______.
answer
Price-taking behavior; Homogeneous product; Unrestricted entry and exit
question
When price equals AVC, the firm _____.
answer
Is indifferent to operating
question
Demand facing the perfectly competitive firm is perfectly elastic because the products sold by all firms are _____.
answer
Perfect substitutes
question
T/F: A manager in a price-taking, competitive industry must make the decision about whether to produce any output using only the average fixed costs.
answer
False
question
Managers will maximize profit by maximizing the difference between _____.
answer
Total revenue and total cost
question
Fixed costs are not considered in the profit-maximizing quantity decision because _____.
answer
Marginal costs are not affected by changes in fixed costs
question
If the manager of a price=taking firm in a competitive industry chooses to produce, she will produce the quantity at which _____.
answer
P = MC
question
A firm will continue to operate in the short run even when operating at a loss as long as it loses _____.
answer
Less than fixed costs
question
Because the _____ shows the quantity that the firm will be willing and able to sell at each price, it is the _____ for the firm.
answer
MC curve above AVC; short-run supply curve
question
The industry supply curve is the _____ of the firms' demand curves.
answer
Horizontal sum
question
Average variable costs are important in the decision about _____.
answer
Whether to produce or not
question
In the short-run, producers surplus can be calculated as ____.
answer
TR - TVC
question
The short-run supply curve for the competitive firm is the _____.
answer
Marginal cost curve above average variable cost
question
The industry supply curve is the _____ of the firms' demand curves.
answer
Horizontal sum
question
A firm that has decided to enter a competitive industry in which profits are being earned will choose the profit maximizing output _____.
answer
Where P = LMC
question
_____ are used to determine the profit maximizing output.
answer
Marginal cost
question
Long-run equilibrium in a competitive industry occurs when _____.
answer
New firms won't enter and existing firms won't leave
question
In the short-run, producer surplus is _____ profit.
answer
Greater than
question
Existing firms will continue to leave a competitive industry in which existing firms are incurring losses until _____.
answer
Prices rise enough to eliminate losses
question
An _____ industry is one in which input prices rise as firms in the industry expand output.
answer
Increasing-cost
question
______ encourage new firms to enter into a competitive industry.
answer
Profits
question
Long-run supply price for a constant-cost industry is _____.
answer
Constant at a minimum LAC
question
The long-run supply curve in an increasing-cost industry will be a(n) _____ line that follows the minimum of the long-run average cost curve(s).
answer
Up-sloping
question
As existing firms leave a competitive industry in which they are incurring losses, prices will _____, causing losses to _____.
answer
Rise; fall
question
Even firms in competitive industries with lower costs than other firms will earn zero economic profits in the long-run because _____.
answer
They will pay economic rents to retain superior inputs
question
A _____ industry is one in which input prices remain the same as all firms in the industry expand output.
answer
Constant-cost
question
Select all that apply: Marginal revenue product can be calculated as _____.
answer
DTR / DI; MR x MP; P x MP
question
Long-run supply for a constant-cost industry is a(n) _____ line.
answer
Horizontal
question
New firms will continue to enter a competitive industry in which existing firms are earning profits until _____.
answer
Prices fall enough to eliminate profits
question
_____ is (are) payment to a superior and more productive resource over and above what the resource could earn in its next best alternative employment.
answer
Economic rent
question
_____ is the additional revenue earned when the firm hires one more unit of the input.
answer
Marginal revenue product
question
When MRP is greater than the wage, the manager should hire _____.
answer
More labor
question
A manager of a firm will choose to shut down when _____.
answer
w > ARP
question
Click and drag on elements in order:
answer
Forecast the price of the product; Estimate average variable cost and marginal cost; Check the shutdown rule; If P > AVCmin, find the output level where P = SMC; Compute the profit loss
question
A manager will maximize profit when he hires the variable input until _____.
answer
MRP = wage
question
When ARP < wage, _____.
answer
TVC > TR
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