question
In perfect competition, there ________.
A) are few buyers
B) are many buyers
C) are no buyers
D) is one buyer
A) are few buyers
B) are many buyers
C) are no buyers
D) is one buyer
answer
B) In perfect competition, there are many buyers.
question
True or false?
Firms in perfect competition sell products that are essentially the same.
Firms in perfect competition sell products that are essentially the same.
answer
True
question
Define:
Price taker
Price taker
answer
A firm/group that cannot change the market price.
question
In perfect competition, barriers to entry are _______.
A) Low
B) High
A) Low
B) High
answer
B) Low
question
To maximize profits for a perfectly competitive firm,
MR =_____.
MR =_____.
answer
P = MR = MC
question
Define:
Shutdown
Shutdown
answer
A short-run decision not to produce any quantity.
question
Define:
Exit
Exit
answer
A long-run decision to leave the market.
question
When should a perfectly competitive firm shut down?
answer
TR < VC
P < AVC
P < AVC
question
Define:
Sunk cost
Sunk cost
answer
a cost that has already been committed and cannot be recovered
question
True or False:
Fixed costs should not impact the decision to shut down.
Fixed costs should not impact the decision to shut down.
answer
True. Fixed costs are sunk costs, and must be paid whether or not a firm decides to shut down.
question
When should a perfectly competitive firm exit?
answer
TR < TC
P < ATC
P < ATC
question
True or False:
At long-run equilibrium, perfectly competitive firms earn zero economic profit.
At long-run equilibrium, perfectly competitive firms earn zero economic profit.
answer
True.
question
Define:
Monopoly
Monopoly
answer
a firm that is the sole seller of a product without close substitutes
question
The key difference between a monopoly and perfect competition is?
answer
A monopoly firm has market power, the ability to influence the market price of the product it sells. A competitive firm has no market power.
question
Define:
Marginal Revenue
Marginal Revenue
answer
the additional revenue collected from the sale of one additional unit of output
question
What are three sources of barriers to entry that allow a monopoly to exist?
answer
- A single firm owns a key resource.
- Government protection
- Natural monopoly
- Government protection
- Natural monopoly
question
Define:
Natural Monopoly
Natural Monopoly
answer
a market situation where a single firm can produce the entire market Q at lower cost than could several firms.
question
The demand curve in perfect competition that an individual firm faces is _______.
answer
Horizontal
Flat
Slope = 0
Flat
Slope = 0
question
When maximizing profit for a monopolist, set Q where ____. Then, determine P by looking at the _________ curve.
answer
MR = MC; demand curve
question
The equation for profit
answer
Profit = (P- ATC) x Q
Profit = TR - TC
Profit = TR - TC
question
Define:
Price Discrimination
Price Discrimination
answer
selling the same good at different prices to different buyers
question
Define:
Willingness to Pay
Willingness to Pay
answer
The highest price a buyer will pay for a good or service
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