EC120 Chapter Notes - Chapter 14: Takers, Sunk Costs, Marginal Revenue

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Compeiive market- there is many buyers and many sellers so that each has a negligible impact on the market price and the goods ofered by various sellers are largely the same. Buyers and sellers are price takers in this market. For all irms, average revenue (total revenue / quanity) = price of the good. Marginal revenue- the change in total revenue from an addiional unit sold. Marginal revenue = price of good (for compeiive irms) Maximize proit by producing the quanity at which marginal cost = marginal revenue. Marginal cost is a irm"s supply curve (it determines the quanity of the good the irm is willing to supply at any given price) A irm"s shutdown criteria is: shutdown if price < average variable cost: sunk costs should not be worried about because there is nothing a irm can do about this don"t cry over spilt milk. A irm"s exit criteria is: exit if price < average total costs.

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20) When price is less than average variable cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. B) shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business. C) shutdown, because it will lose nothing in that case. D) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. 21) When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost. B) shutdown to minimize its losses. C) reduce output to the level at which price equals average variable cost to minimize its losses. D) increase output to minimize its losses. 22) Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm? A) The firm should increase its explicit costs to reduce its tax burden. B) The firm should shut down right now. C) The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run. D) The firm is earning zero economic profit and should continue to operate. 23) The perfectly competitive firm's supply curve: A) coincides with its perfectly elastic demand curve. B) is the firm's average total cost curve above the shutdown point. C) is perfectly inelastic at the market price. D) is the firm's marginal cost curve above the minimum point on the AVC curve. 24) Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? A) Firms will exit the market, causing price to rise until losses are eliminated. B) Firms will exit the market, causing price to fall until positive profits are eliminated. C) Firms will enter the market, causing price to fall until positive profits are eliminated. D) Firms will enter the market, causing price to rise until losses are eliminated. 25) What is the "most efficient capacity" for the perfectly competitive firm? A) The plant size for which Price = AR. B) The plant size at which LRAC is at its minimum. C) The plant size at which MR = MC. D) The plant size at which any of the SRATC curves are tangent to the LRAC curve.

greenrat247

Consider a market with many firms that have different cost structures.

Unless shutdown or exit is optimal, every firm expands production until ___________.

marginal product is maximized.

B. marginal revenue, marginal cost, and price are all equal

(MR = MC = P)

C. marginal revenue is equal to the minimum of the short-run average total cost.

D. marginal cost is minimized.

To construct the supply curve in a market with many firms with different cost structures, the ___________.

individual supply curves for each firm are added together.

individual average variable cost curves are added together.

minimums of theâ firms' marginal cost curves are linked together.

minimums of theâ firms' long-run average total cost curves are linked together.

The equilibrium price is the ___________.

âlong-run average total cost of the last entrant into the market.

the average marginal cost of the firms.

the long-run average total cost of the first entrant into the market.

minimum of the average variable cost of the smallest firm in the market.

In terms of economic profits, early market entrants earn

(negative

zero

positive)

economic profits and the last entrant earns

(negative

zero

positive)

economic profits.

A perfectly competitive firm will choose to shut down when the (price (marginal revenue)/ average total cost) intersects the marginal cost curve below the ( total cost curve average variable cost curve ).

Therefore, the short-run supply curve for a perfectly competitive firm is represented by __________.

A. the portion of the average variable cost curve below marginal cost. B. the portion of the average variable cost curve above marginal cost. C. the portion of the marginal cost curve above the average total cost. D. the portion of the marginal cost curve above average variable cost.

In the long run, the supply curve for a perfectly competitive firm is represented by __________.

A. the portion of the marginal cost curve above the average total cost. B. the portion of the marginal cost curve above average variable cost. C. the portion of the average variable cost curve below marginal cost. D. the portion of the average variable cost curve above marginal cost.

mauvemacaw466

Multiple choice qs on Perfect Competition - Qs College level 1 MIcreconomics

1. What is the correct interpretation of the perfectly competitive firm's supply curve?

It is the same as its average variable cost curve.

It is the same as its total variable cost curve.

It is the same as the portion of its marginal cost curve that lies above the average variable cost curve.

It is the same as the portion of its average variable cost curve that lies above the marginal cost curve.

2. What is the name of the type of market that is dominated by a few firms?

Oligopoly.

Monopolistic competition.

Monopoly.

Perfect competition.

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3. What is break-even output?

The output at which the total revenue just covers a firm's total fixed cost.

The output at which the total revenue just covers a firm's total variable cost.

The output at which the total revenue just covers a firm's fixed and variable costs including normal profits.

The output at which the firm is making zero normal profits.

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4. All of the following except one are considered to be the prerequisite elements for a market system to work effectively. Which is the exception?

Extensive specialization and trade.

Perfect competition.

Private ownership of productive resources.

A legal and social foundation

A balanced government budget

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5. What is the term for the price at which the firm makes only normal profits?

Shutdown price.

Break-even price.

Average price.

Economic price.

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6. Which of the following statements is true regarding the price in a perfectly competitive market?

Price equals average revenue but not marginal revenue.

Price equals marginal revenue but not average revenue.

Price is equal to neither the average nor the marginal revenue.

Price is equal to both the average and marginal revenue.

=================================================

7. What is the term for the extra revenue derived from the sale of one more unit?

Average revenue.

Marginal revenue.

Net revenue.

Total revenue.

=========================

8. What is the term for the amount of revenue that will always equal the price of the product in a perfectly-competitive market?

Marginal price.

Net revenue.

Average revenue.

Total revenue.

EC120 Chapter Notes - Chapter 14: Takers, Sunk Costs, Marginal Revenue

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