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ECON111 > Chapter 8 > Flashcards

Chapter 8 Flashcards

(66 cards)

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1
Q

How do farmers respond to difficulty in making money?

A

Switch crops

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2
Q

What happens to positive economic profits in the long run?

A

Attract competition

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3
Q

What happens to total cost at higher levels of output?

A

Slopes upward more steeply

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4
Q

How is profit calculated?

A

Total revenue minus total cost

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5
Q

What remains constant as the firm produces more output under perfect competition?

A

Marginal Revenue

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6
Q

What is the profit-maximizing condition for a perfectly competitive firm?

A

MR = MC

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7
Q

What does it indicate when price intersects marginal cost above the average cost curve?

A

Firm is making a profit

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8
Q

What is the break even point?

A

Price = Average Cost

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9
Q

What happens when price > average cost?

A

Firm earns profits

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10
Q

What is the shutdown point?

A

Intersection of AVC and MC

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11
Q

What is the market price for a firm in perfect competition?

A

Constant / Given

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12
Q

What do losses cause businesses to do?

A

Flee

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13
Q

What is the zero-profit level?

A

No economic profits

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14
Q

What happens to costs when demand for skilled labor rises?

A

Costs increase

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15
Q

In a perfectly competitive market, what is price equal to?

A

Marginal cost of production

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16
Q

What causes firms to exit the market?

A

Economic losses

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17
Q

Where does maximum profit occur?

A

Largest difference between TR and TC

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18
Q

What is a perfectly competitive firm’s pricing behavior?

A

Price taker

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19
Q

What happens when price equals average cost?

A

Firm is breaking even

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20
Q

If Price > ATC, what will the firm earn?

A

Economic profit

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21
Q

What happens when a firm operates below the break-even point?

A

It incurs a loss.

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22
Q

When does a firm stay in business?

A

Price > minimum average variable cost

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23
Q

How is total revenue calculated for a firm in perfect competition?

A

Price multiplied by quantity

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24
Q

What is the long-run response to sustained losses?

A

Cease production

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25
What condition allows firms to continue producing?
P = MR = MC & cover AVC
26
What is the long-run outcome in a constant-cost industry?
More output at same price
27
What is the long-run equilibrium condition in perfectly competitive markets?
Economic profits zero
28
What happens when MR > MC?
Increase profit by increasing output
29
What does it indicate when price intersects marginal cost below the average cost curve?
Firm is making a loss
30
If Price = ATC, what will the firm earn?
Zero economic profit
31
What are the two options for a firm operating at a loss?
Continue producing or shutdown.
32
What determines output level in a perfectly competitive firm?
P = MR = MC
33
What happens if marginal costs increase at all output levels?
Firm produces less
34
Why do firms cease to exist?
Lack of profitability
35
What ends the process of rising prices?
Zero-profit level
36
What is the shape of the LRS curve in perfectly competitive markets?
Flat curve
37
What are the characteristics of a perfectly competitive market?
Many firms, identical products, free entry/exit
38
What determines a perfectly competitive firm's level of profits?
Total revenue and total costs
39
What type of demand curve does a firm in perfect competition face?
Perfectly elastic demand
40
What happens when MC > MR?
Increase profit by reducing output
41
What is the rule for a profit-maximizing perfectly competitive firm?
Price = MR = MC
42
If Price < ATC, what will the firm earn?
A loss
43
What happens when market price is above the break even point?
Firm earns profits
44
What does P > AVC but P < ATC indicate?
Continue producing, economic losses
45
What is the main measurement for business operation?
Profits
46
What drives price to the zero-profit point in perfectly competitive markets?
Entry and exit
47
What does P < MC indicate?
Marginal costs exceed societal benefits
48
What is a perfectly competitive firm known as?
Price taker
49
How does revenue change with each additional unit sold by a firm in perfect competition?
Increases by market price
50
What occurs at MR = MC?
Profit-maximizing output
51
What is the profit-maximizing rule for a perfectly competitive firm?
P = MC
52
What happens to variable costs when shutting down?
Reduce to zero
53
What occurs at the break even point?
Zero profits
54
What happens if P < AVC?
Stops producing, incurring fixed costs
55
What happens to firms that cannot make money?
Exit the market
56
What is the long-run equilibrium condition in a constant-cost industry?
New price equals old price
57
What is achieved in perfectly competitive markets?
Productive and allocative efficiency
58
Who determines the market price of wheat?
Supply and demand
59
What indicates a positive profit margin?
Price > Average Cost
60
What happens if price falls below the shutdown point?
Firm shuts down
61
Can a perfectly competitive firm affect market price alone?
No
62
What does productive efficiency mean?
Producing without waste
63
Which market is commonly used as an example of perfect competition?
Agricultural markets
64
What indicates a negative profit margin?
Price < Average Cost
65
What is perfect competition considered?
Hypothetical benchmark
66
What type of demand curve does a perfectly competitive firm face?
Perfectly elastic

ECON111 (34 decks)

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