Chapter 14 - Firms in Competitive Markets

Question 1

What is a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker?

Answer 1

A competitive market

Question 2

What is a competitive market also called?

Answer 2

A perfect market

Question 3

Are competitive or monopoly markets price takers?

Answer 3

Competitive markets

Question 4

Are competitive or monopoly markets price makers?

Answer 4

Monopoly

Question 5

What is the formula to find profit?

Answer 5

Total Revenue - Total Cost

Question 6

What is the formula to find total revenue?

Answer 6

Price x Quantity

Question 7

When there is a lot of competition do companies price their goods based on quantity sold or market conditions?

Answer 7

Market conditions

Question 8

In a competitive market is price fixed or variable?

Answer 8

It’s fixed

Question 9

What is the formula to find average revenue?

Answer 9

Total Revenue/Quantity

Question 10

What is average revenue equal to?

Answer 10

It’s equal to total revenue when quantity = 1

Question 11

What is marginal revenue equal to?

Answer 11

Total revenue when quantity = 1

Question 12

What’s the change in total revenue from an additional unit sold?

Answer 12

Marginal revenue

Question 13

In a competitive market when do you have maximum profit?

Answer 13

When marginal cost equals marginal revenue

Question 14

What is the formula to find marginal cost?

Answer 14

Total cost when quantity equals 1 - total cost when quantity equals 0

Question 15

What is the formula to find change in profit?

Answer 15

Marginal revenue - marginal cost

Question 16

If marginal revenue is greater than marginal cost should you increase of decrease production/output?

Answer 16

You should increase production

Question 17

When should you stop increasing production?

Answer 17

When marginal cost is greater than marginal revenue

Question 18

At what point does the marginal cost curve cross the average total cost (ATC) curve?

Answer 18

At the ATC curve’s minimum point

Question 19

On a graph where is a firm’s profit maximizing quantity found?

Answer 19

At the point where the MC curve crosses the line representing the price

Question 20

What is the formula to find total cost?

Answer 20

ATC x Q

Question 21

Is the marginal cost curve upward or downward sloping?

Answer 21

Upward sloping

Question 22

Is the ATC curve a straight line or U-shaped?

Answer 22

It’s u-shaped

Question 23

In a competitive market if there is a price increase do firms increase or decrease production?

Answer 23

They increase production

Question 24

What refers to the short run decision to leave the market?

Answer 24

A shutdown

Question 25

If a firm shutsdown do they still have to pay fixed costs?

Answer 25

Yes

Question 26

What refers to the long run decision to leave the market?

Answer 26

Exit

Question 27

If a firm exits the competitive market do the still have to pay costs?

Answer 27

No

Question 28

What are the two times when a firm should decide to shutdown?

Answer 28

1. When variable costs is greater than total revenue | 2. When average variable costs (AVC) is greater than price

Question 29

On a graph at what points should a firm shut down?

Answer 29

At any points where the MC is below the AVC curve

Question 30

What is a cost that has already been committed and cannot be recovered called?

Answer 30

A sunk cost

Question 31

In the short run what is an example of sunk costs?

Answer 31

Fixed costs

Question 32

True or False: Marginal revenue = average revenue

Answer 32

True

Question 33

True or False: There is nothing that you can do about sunk costs

Answer 33

True

Question 34

In the short run are fixed costs or variable costs relevant?

Answer 34

Variable costs are relevant

Question 35

In the long run at what two points should you exit the market?

Answer 35

1. TR < TC | 2. P < ATC

Question 36

In the long run at what two points should you enter the market?

Answer 36

1. TR > TC | 2. P > ATC

Question 37

On a graph which curves does the short run deal with?

Answer 37

AVC & MC

Question 38

At what point on a graph should a firm exit the market?

Answer 38

At points where MC is below the ATC curve

Question 39

What is the portion of its marginal-cost curve that lies above average total cost?

Answer 39

The competitive firm's long run supply curve

Question 40

If price is greater than average total cost do you have profit or loss?

Answer 40

Profit

Question 41

If price is less than average total cost do you have profit or loss?

Answer 41

Loss

Question 42

What are the 2 formulas to find profit?

Answer 42

1. TR - TC 2. (P - ATC) x Q Study Hint: Profit and P both are p, that is why p goes first

Question 43

What are the 2 formulas to find loss?

Answer 43

1. TC - TR | 2. (ATC - P) x Q

Question 44

Is loss a positive or negative number?

Answer 44

A negative number

Question 45

In the short run is the number of firms who enter and exit the market fixed or variable?

Answer 45

Fixed

Question 46

In the short run what is the marginal supply curve equal to?

Answer 46

The marginal cost curve

Question 47

In the long run when do firms enter the market?

Answer 47

When P > ATC

Question 48

Is the long run supply curve perfectly inelastic or perfectly elastic?

Answer 48

Perfectly elastic

Question 49

In the long-run equilibrium of a competitive market what must firms be operating at?

Answer 49

Their efficient scale

Question 50

At what point on the graph is a scale considered efficient?

Answer 50

At the point where MC = ATC

Question 51

In the long run firms will enter and exit the market until profit equals what?

Answer 51

0

Question 52

When profit equals 0 what does the long run market supply curve look like?

Answer 52

A horizontal line