Chapter 14

Question 1

competition

Answer 1

• where more than one firm offers the same or similar product

Question 2

perfectly competitive market

Answer 2

• there are many buyers and sellers in the market
• goods offered are largely the same
• firms can freely enter or exit the market
• there is a high degree of information available to buyers and sellers in the market

Question 3

total revenue formula

Answer 3

selling price x quantity sold (PxQ)

Question 4

average revenue formula

Answer 4

AR = total revenue / quantity sold

Question 5

average revenue in perfect competition

Answer 5

equals the price of the good

Question 6

marginal revenue

Answer 6

the change in total revenue from an additional unit sold

Question 7

marginal revenue formula

Answer 7

MR = change in TR / change in Q

Question 8

profit maximisation

Answer 8

marginal revenue = marginal cost

Question 9

shutdown

Answer 9

refers to a short-run decision not to produce anything during a specific period of time because of current market conditions

Question 10

exit

Answer 10

refers to a long-run decision to leave the market

Question 11

opportunity cost

Answer 11

what you have to give up if you choose to do one thing instead of another

Question 12

sunk cost

Answer 12

cost that has already been committed and cannot be recovered

Question 13

shutdown if

Answer 13

price is less than average variable cost

Question 14

exit if

Answer 14

price is than average total cost

Question 15

enter if

Answer 15

price is greater than average total cost

Question 16

normal profit

Answer 16

the minimum level of profit needed for a company to remain competitive in the market
total revenue - total cost = 0

Question 17

abnormal profit

Answer 17

the profit over and above normal profit

Question 18

marginal firm

Answer 18

the firm that would exit the market if the price were any lower