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83 True/False questions

  1. In perfect competition, the market sums up the buying and selling preferences of individual consumers and producers, and determines the market price.Each buyer and seller then takes the market price as given, and each is able to buy or sell the desired quantity.

          

  2. The _______ is the time horizon sufficiently long for firms to vary all of their inputs.The short run

          

  3. Since it is a perfectly competitive firm, a small participant in the market it can---Expand in this way without worrying about affecting the market price. As a result, the firm, after expanding, could p[erate on a new, lower ATC curve, so that ATC is less than P. That ism by expanding, the firm could potentially earn an economic profit.

          

  4. Page 265Page 262 graph explained

          

  5. What is a decreasing cost industry?Causes input prices to fall, ant the LRATC curve to shift downward at each firm. An industry in which the long run supply curve slopes downward because each firm's LRATC curve shifts downward as industry output increases.

          

  6. What are the two approaches for finding the profit maximizing output level?The total revenue and total cost approach and the MR and MC approach.

          

  7. In a perfectly competitive market, the number of buyers and sellers is so large that...have all information relevant to their decision to buy or sell.

          

  8. In a competitive market, economic losses continue to cause _______ until the losses are reduced to zeroExit

          

  9. Because we are dealing with a constant cost industry, the long-run supply curve is ____________.Horizontal

          

  10. A competitive firm's supply curve is its ______ curve for all prices above the minimum AVC. For all prices below minimum AVC, the firm will ______.MC, Shut down

          

  11. Because every farm in the industry-- the existing ones as well as new entrants-- must pay more for their farmland, their LRATC curves have shifted __________.Because by increasing its plant size, it could slide down its LRATC curve and produce more output at a lower cost per unit.

          

  12. What is the firm's profit per unit?An industry in which the long-run supply curve is horizontal because each firm;s cost curves are unaffected by changes in industry.

          

  13. Review 260-270Read this very late in the night
    RUHL TIRED

          

  14. What is an increasing cost industry?An industry in which the long-run supply curve slopes upward because each firm's LRATC curve shifts upward. The entry of new firms that use the same inputs as existing firms drives up input prices. This in turn causes each firm;s LRATC curve to shift upward.

          

  15. In a competative market, ___________ continues to attract new entrants until economic profit is reduced to zero.Positive economic profit

          

  16. If TR> TVC then __________.The firm should continue to operate.

          

  17. If a graph gives us the combined output level of just those firms already in the industry, what does the graph represent?Long run

          

  18. Look at the chart on page 257The additional revenue the firm earns from selling an additional unit of output. For a price-taking competitive firm, the additional revenue will always be he unchanging price it gets for each unit (in the case of figure 2 this is $800).

          

  19. In the long run, the typical firm will want to expand. Why?Fixed

          

  20. An increase in the number of firms shifts the market supply curve ____________, which drives down the price until the economic profit is eliminated.Rightward.. But how far can we expect the market supply curve to shift? This depends on whether or not the expansion of the industry causes each firm's cost curves to shift.

          

  21. What is economic profit?The additional revenue the firm earns from selling an additional unit of output. For a price-taking competitive firm, the additional revenue will always be he unchanging price it gets for each unit (in the case of figure 2 this is $800).

          

  22. The long run supply curve tells us that an increasing cost industry will deliver more _________, but only at a _________ price.Drop, a decrease in output would cause each firm's LRATC curve to shift downward so that zero profit would be established at a lower price than initially.

          

  23. In the long run, as the number of firms increases, the market supply curve will ______________.Shift Rightward

          

  24. FIgure 9 explanation at bottom of page...TWANDA!!!!

          

  25. As we move along the market supply curve, what do we assume are constant?The fixed inputs of each firm and the number of firms in the market

          

  26. The _________ curve show if then relationships. IF the price were such and such, then the firms would supply this much and consumers would buy this much.Long run

          

  27. In the long run, firms can expect zero economic profit.The amount by which total revenue exceeds all costs of doing business.

          

  28. In a market economy, price changes act as ___________, ensuring that the pattern or pridcution matches the pattern of consumer demands.Minimum

          

  29. As the market supply curve shifts rightward, what happens?The fixed inputs of each firm and the number of firms in the market

          

  30. In order to know for certain how much output the firm will produce, we must utilize _______.LRATC

          

  31. What is the long run supply curve?Shows the relationship between market price and market quantity produced after all long-run adjustments have taken place. A curve indicating price and quantity combinations in an industry after all long run adjustments have taken place.

          

  32. Perfect competition is a market structure with four important characteristics:Easy

          

  33. Price changes act as signals for firms to ___________.enter or exit an industry

          

  34. In the __________, new firms can enter a competitive market, and existing firms can exit the market.Short run

          

  35. As the price of output changes, the firm will ___________ its MC curve in deciding how much to produce. But there is one problem with this: If the firm is suffering a loss-- a loss large enough to justify shutting down, then it will not produce along its MC curve; it will ______.Slide along, Produce zero units instead

          

  36. A perfectly competitive firm faces a demand curve that is horizontal (perfectly elastic) at the market price. why should this be?First, in perfect competition, output is standardized. Second, small firms do not make much difference in the market quantity supplied. The horizontal demand curve describe this effect very well: the firm can increase its production without having to lower its price. ALl of this means that firms have no control over the price of its output-- it accepts the market price as given.

          

  37. Look at the graphs on page 261PAGE 257

          

  38. How is short run equilibrium established?Shows the relationship between market price and market quantity produced after all long-run adjustments have taken place. A curve indicating price and quantity combinations in an industry after all long run adjustments have taken place.

          

  39. Graph and explanationRead this very late in the night
    RUHL TIRED

          

  40. Under perfect competition, a technological advance leads to a rightwards shift of the market supply curve, decreasing market price.Easy

          

  41. Entry into a market is rarely free; a new seller must always incur some costs to set up shop.1. The market price begins to fall
    2. As the market price falls, the horizontal demand curve facing each firm shifts downward
    3. Each firm, striving as always to maximize profit-will slide down its marginal cost curve, decreasing output

          

  42. Th obtain the _________, we add up the quantities of output supplied by all firms in the market at each price.Market supply curve

          

  43. The TR and TC approach is the most direct way of viewing the firm's search for the profit-maximizing output level. Quite simply, at each output level, subtract total cost from the total revenue to get total profit.Total Profit= TR- TC

          

  44. The typical firm, taking the market price P as given, produces the profit-maximizing output level q*, where MR=MC. Since this is the long run, each firm will be earning _________.The total revenue and total cost approach and the MR and MC approach.

          

  45. In the MR and MC approach, the firm should..continue to increase output as long as marginal revenue is greater than marginal cost.

          

  46. In the ________ equilibrium, competitive firms can earn an economic profit or suffer an economic loss.Short run

          

  47. In the long-run equilibrium, a competitive firm will operate with the plant and output level that bring it to the bottom of its ________ curve.LRATC

          

  48. In a constant cost industry, in which industry output has no effect on individual firm's cost curves, the longprun supply curve is horizontal. In the short run, the industry will ______.supply any amount of output demanded at an unchanged price.

          

  49. In perfect competition, both buyers and sellers...Easy

          

  50. In microeconomics, we can divide markets for goods and services into four basic kinds of market structure:no individual decision maker can significantly affect the price of the product by changing the quantity it buys or sells.

          

  51. The long run supply curve tells us that if an industry output decreases, prices will _________. This is because...Shift Rightward

          

  52. One way to measure profit on a graph: the vertical distance between the TR and TC curves. Another way is ______.To measure the firm's profit per unit.

          

  53. In chapter 7, MC and ATC are equal only at the minimum point of the ATC curve.MC=minimum ATC=minimum LRATC=P

          

  54. Indeed, most agricultural markets satisfy the strict requirements of perfect competition quite closely, as do many financial markets and some markets for consumer goods and services.Yet when economists look at real-world markets, they use the perfect competition model more than any other market model because it is powerful and many markets are reasonably close to being perfectly competitive.

          

  55. For a competitive firm, marginal revenue is the same as the market price. For this reason, the marginal revenue curve and the demand curve facing the firm are...MC, Shut down

          

  56. When differences among firms' products matter to buyers...the market is not perfectly competitive.

          

  57. A firm suffers loss whenever P<ATC at the best level of output.Its total los equals the area of a rectangle with height equal to the distance between P and ATC, and width equal to the quantity of output.

          

  58. In perfect competition, the firm is a ________: it treats the price of its output as given.Each buyer and seller then takes the market price as given, and each is able to buy or sell the desired quantity.

          

  59. What is a market signal?Price changes that cause changes in production to match change in consumer demand.

          

  60. Panel A does not show true long run equilibrium...

          

  61. For any price below the minimum AVC, the firm will shut down and produce zero.We can summarize all of this information with the firm;s supply curve, which tells us how much output the firm will produce at each price.

          

  62. Expansion by existing firms and entry by new ones increase market output and bring down the market price. This would be illustrated by a _____________ shift of the demand curve.The same: a horizontal line at the market price.

          

  63. In the long-run equilibrium, the competitive firm operates where:LRATC

          

  64. By market structure we mean...All of the characteristics of a market that influence the behavior of buyers and sellers when they come together to trade/ influences how trading takes place.

          

  65. In the short run, the numbers of firms in the industry is _______.Fixed

          

  66. In a competative market, economic profit and loss are the forces driving long-run change.no individual decision maker can significantly affect the price of the product by changing the quantity it buys or sells.

          

  67. Shutdown Rule:Shut down if TR<TVC
    Shut down if (TR/q)<(TVC/Q)
    Shut down if P<AVC

          

  68. What happens in the long run ayer the demand curve shifts rightward?An industry in which the long-run supply curve is horizontal because each firm;s cost curves are unaffected by changes in industry.

          

  69. To emphasize that zero economic profit is not an unpleasant outcome, economists often replace it with the term __________, which is a synonym for "zero economic profit."The expectation of continued economic profit causes outsiders to enter the market; the expectation of continued economic losses causes firms in the market to exit.

          

  70. In an increasing cost industry, a rise in industry output shifts ______ each firm's LRATC curve, so that zero economic profit occurs at a higher price. THe long-run curve slopes ________.Fixed

          

  71. Question at the bottom of page 264and explanation on page 160

          

  72. Page 261 graphthere is a question that I don't know what it is.

          

  73. What is the price at which a firm is indifferent between producing and shutting down?The revenue it gets on each unit minus the cost per unit.
    Profit per unit= P- ATC. (P is just the price of the firm's output)

          

  74. Not one individual firm has the power to influence tha market price. Rather the price is determined by...Entry into the industry, which changes the demand curve for the industry's inputs, may also change input prices. If this occurs, firms' cost curves can shift as well.

          

  75. What is marginal revenue?The additional revenue the firm earns from selling an additional unit of output. For a price-taking competitive firm, the additional revenue will always be he unchanging price it gets for each unit (in the case of figure 2 this is $800).

          

  76. The shutdown price is found at the _________ of the AVC curve.TWANDA!!!!

          

  77. There is one other possible consequence that we ignore here:Shows the relationship between market price and market quantity produced after all long-run adjustments have taken place. A curve indicating price and quantity combinations in an industry after all long run adjustments have taken place.

          

  78. A firm earned a profit whenever, P> ATC.Its total profit at the nest output level equals the area of a rectangle with height equal to the distance between P and ATC, and width weal to the quantity of output.

          

  79. In a perfectly competitive market...buyers do not perceive differences between the products of one seller and another. For example, buyers of wheat will ordinarily have no preference for one farmer's wheat over another's, so wheat would surely pass the standardized product test.

          

  80. What is the constant cost industry?An industry in which the long-run supply curve is horizontal because each firm;s cost curves are unaffected by changes in industry.

          

  81. In terms of economics, competition is used to to describe...a situation of diffuse, impersonal competition in a highly populated environment.

          

  82. P=ATC. But since P=MC and P*=ATC, it must also be true that _______.MC=ATC

          

  83. Perfect competition also requires _____ exit.Easy