CH.9 Flashcards
(9 cards)
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In perfect competition, the marginal revenue is the same as:
a) half the price
b) price
c) marginal cost
d) averag e cost
b) price
Marginal revenue is always the amunt of revenue you receive from selling one more unit. In perfect competitive markets: Marginal revenue = marginal benefit = price
According to the data in the table, what level of output maximizes profit?
Shirts per Minute Marginal Revenue Marginal Cost
0 $12 $0
1 $12 $5
2 $12 $1
3 $12 $3
4 $12 $4
5 $12 $5
6 $12 $7
7 $12 $9
8 $12 $12
9 $12 $16
10 $12 $21
8 units of output
-** The marginal principle** tells us that the firm will maximize profit by choosing the quantity at which marginal revenue (the market price) equals marginal cost. As long as marginal revenue is greater than the marginal cost, the firm will benefit by increasing the output.
Which of the following is a characteristic of a perfectly competitive market?
a) The products are differentiated
b) firms are price setters
c) firms cannot freely enter or exit the market
d) there are large numbers of buyers and sellers
d) there are large numbers of buyers and sellers
- For a market to be competitive, the number of market participants must be large enough so that no one buyer or seller can influence the market price. The other three features of a competitive market are: (1) a standardized (homogeneous) product, (2) consumers know well all products in the market, and (3) firms can freely enter or exit the market.
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On a graph, where would a perfectly competitive firm maximize profit?
a) MR = MC
b) MR > MC
c) MR < MC
a) MR = MC
Profit is maximized at the point where marginal revenue is equal to marginal cost
Caffes sold: 6
Price: $3.00
Total Revenue: $18.00
what is the average revenue?
$3
- average revenue = total revenue/# units produced
18/6 = 3
In perfect competition, when a firm is making positive economic profit in the short run, then new firms enter the market causing the market supply curve to __________ and the market price to __________.
a) shift leftward; increase
b) shift rightward; increase
c) shift rightward; decrease
d) shift leftward; decrease
c) shift rightward; decrease
- Freedom of market entry and exit will ensure that in the long-run economic profits will be zero. As firms make economic profits, it will attract new entrants to this market and shift the supply curve to the right. This increase in supply pushes price lower until the long-run equilibrium price is established where all firms make zero economic profit.
If the average total cost curve is above the demand curve, then this firm is:
a) producing at the minimum efficiency scale
b) breaking even
c) having economic losses
d) earning an economic profit
c) having economic losses
- A demand curve represents the number of units demanded at each price for that good. If the demand curve is below the average total cost curve, then that means the costs to produce are higher than every price point on the demand curve.
For a firm to make an economic profit, the demand curve will need to be above the average total cost curve.
A firm in perfect competition earns profit if:
a) price is equal to average total cost
b) price is greater than average total cost
c) price is greater than average variable cost
d) price is equal to average variable cost
b) price is greater than average total cost
- A firm must cover all costs in order to make a profit. This only occurs if the price per unit is higher than average total cost to produce the product.
A buyer or seller that is unable to affect the market price is called a:
a) price maker
b) oligopolist
c) price taker
d) monopolist
c) price taker
A price taker must accept the current market determined equilibrium price in order to buy or sell. The reason is that in a competitive market, there are so many buyers and sellers that no single buyer or seller is large enough to sway price.
A price maker implies market power of some type that is either a monopolist or some other large firm that controls enough market share to impact price. A buyer can also impact price if they are large enough.
