Chapter 13

Question 1

price-taking producer

Answer 1

A producer whose actions have no effect on the market price of the good or service it sells

Question 2

price-taking consumer

Answer 2

A consumer whose actions have no effect on the market price of the good or service he or she buys

Question 3

perfectly competitive market

Answer 3

A market in which all market participants are price-takers

both consumers and producers

Question 4

Perfectly competitive industry

Answer 4

An industry in which producers are price-takers

Question 5

Market share

Answer 5

The fraction of the total industry output accounted for by that producer’s output

Question 6

Standardized product (commodity)

Answer 6

A good is considered this when consumers regard the products of different producers as the same good

Question 7

entry

Answer 7

arrival of new firms into the industry

Question 8

exit

Answer 8

departure of firms from an industry

Question 9

free entry and exit

Answer 9

When new producers can easily enter into an industry and existing producers can esaily leave that industry

Question 10

3 characteristics of perfect competition

Answer 10

1. Contain many producers - each having a small market share
2. industry producers a standardized product
3. normally characterized by free entry and exit

Question 11

Marginal Revenue

Answer 11

The change in total revenue generated by an additional unit of output

Change in total revenue

Change in quantity of output

Question 12

Optimal output rule

Answer 12

Profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost

Question 13

Price-taking firm’s optimal output rule

Answer 13

A price-taking firm’s profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced

Question 14

Marginal revenue curve

Answer 14

Shows how marginal revenue varies as output varies

Question 15

Economic profit

Answer 15

A measure based on the opportunity cost of resources used in the business

Question 16

TR > TC

Answer 16

profitable

Question 17

TR = TC

Answer 17

firm breaks even

Question 18

TR < TC

Answer 18

firm incurs a loss

Question 19

P > ATC

Answer 19

firm is profitable

Question 20

P = ATC

Answer 20

firm breaks even

Question 21

P < ATC

Answer 21

firm incurs a loss

Question 22

Break-even price

Answer 22

The market price at which it earns zero profits

Question 23

Shut-down price

Answer 23

A firm will cease production in the short run if the market price falls below this price, which is equal to the minimum average variable cost

Question 24

Short-run individual supply curve

Answer 24

Shows how an individual producer’s profit-maximizing output quantity depends on the market price, taking fixed cost as given.

Question 25

Industry Supply Curve

Answer 25

Shows the relationship between the price of a good and the total output of the industry as a whole

Question 26

Short-run industry supply curve

Answer 26

Shows how the quantity supplied by an industry depends on the market price given a fixed number of producers

Question 27

Short-run market equilibrium

Answer 27

When the quantity supplied equals the quantity demanded, taking the number of producers as given

Question 28

Long-run market equilibrium

Answer 28

When the quantity supplied equals the quantity demanded, given that sufficient time has eslapsed for entry into and exit from the industry to occur.

Question 29

Long-run industry supply curve

Answer 29

Shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry.