Chapter 11: Perfect Competition

Question 1

Marginal Revenue

Answer 1

Change in total revenue that results from a one-unit increase in the quantity sold. It is calculated as the change in total revenue divided by the change in quantity sold.

Question 2

Perfect Competition

Answer 2

Market in which there are many firms each selling an identical product; there are many buyers; there are no restrictions on entry into the industry; firms in the industry have no advantage over potential new entrants; and firms and buyers are well informed about the price of each firm’s product.

Question 3

Price Taker

Answer 3

Firm that cannot influence the price of the good or service it produces.

Question 4

Short-run Market Supply Curve

Answer 4

Curve that shows the quantity supplied in a market at each price when each firm’s plant and the number of firms remain the same.

Question 5

Shutdown Point

Answer 5

Price and quantity at which the firm is indifferent between producing the profit-maximizing output and shutting down temporarily. The shutdown point occurs at the price and the quantity at which average variable cost is a minimum.

Question 6

Total Revenue

Answer 6

Value of a firm’s sales. It is calculated as the price of the good multiplied by the quantity sold.