Module 7

Question 1

rice, clothes, etc.

Answer 1

commodities

Question 2

labor, land, intermediate goods (seeds, steel, etc.)

Answer 2

inputs

Question 3

Markets can have different structures (next slide), which are
generally distinguished by the

Answer 3

number of sellers or buyers in the market & control over prices of individual buyers and sellers.

Question 4

Monopoly: one firm, Oligopoly : few firms, Monopolistic competition: many firms differentiated products

Answer 4

Imperfect markets (IM)

Question 5

Two general types of market
structures

Answer 5

PCM & IM

Question 6

Very large numbers of buyers & sellers

Answer 6

Perfectly Competitive Market (Pcm) Features

Question 7

T OR F
IN PCM, Each buyer and seller is ‘too small’ to control market price

Answer 7

TRUE

Question 8

Market price is determined by supply and not by an individual buyer or seller.

Answer 8

false ; DEMAND is included

Question 9

In pcm, Buyers and sellers are ___

Answer 9

PRICE TAKERS

Question 10

Standardized or homogeneous products

Answer 10

PCM FEATURES

Question 11

Goods sold are identical or consumers do not perceive distinct differences among goods

Answer 11

HOMOGENEOUS PRODUCTS

Question 12

What are the government or artificial restrictions

Answer 12

price ceilings, floor prices, taxes, or subsidies

Question 13

Perfect mobility of goods and resources

Answer 13

PCM

Question 14

Firms are not free to exit the industry, only enter.
Firms can sell goods in any geographical area.
Factors of production (e.g., labor) can be employed between industries.

Answer 14

first statement - Firms are free to enter or exit the industry.

Question 15

Perfect information

Answer 15

PCM

Question 16

T or F

In a perfectly competitive market, individual firm can influence the market price

Answer 16

false ; no individual

Question 17

What does firm in PCM faces in demand curve?

Answer 17

perfectly elastic

Question 18

T or F
The firm operates a price that is determined by the market.

Answer 18

TRUE

Question 19

Equilibrium price is
determined in the ___________

Answer 19

MARKET

Question 20

Once determined, a _____ can sell as much as it wants at that price.

Answer 20

firm

Question 21

T or F
Changes in market conditions can affect the price at which the firm sells its output.

Answer 21

TRUE

Question 22

gross income of the firm from the sale of its product.

Answer 22

Total revenue (TR)

Question 23

Formula for TR

Answer 23

TR = P x Q

Question 24

extra revenue earned from each additional unit of output sold

Answer 24

Marginal Revenue

Question 25

Formula for MR

Answer 25

Δ TR / ΔQ

Question 26

total revenue divided by output

Answer 26

Average Revenue

Question 27

Under perfect competition, P = MR = AR

Answer 27

TRUE

Question 28

The objective of the firm IS TO....

Answer 28

maximize profits

Question 29

Formula for Profits

Answer 29

Total revenue (TR) –Total Cost (TC)

Question 30

the vertical distance between the TR and TC curves

Answer 30

Profits or losses

Question 31

Q = Q0 or Q = Q1: TR = TC

Answer 31

zero profits

Question 32

Q0 < Q < Q1: TR > TC

Answer 32

making profits

Question 33

TR ___ TC, negative profits

Answer 33

<

Question 34

Profit is at ___ : if the slope of the TR curve = slope of the TC curve

Answer 34

profits are highest

Question 35

MR = MC at maximum profits

Answer 35

TRUE

Question 36

Total revenues fORMULA

Answer 36

P x Q

Question 37

Total cost formula

Answer 37

AC x Q

Question 38

profit formula

Answer 38

TR-TC

Question 39

zero profits: P = MR = MC at the minimum of point of the AC curve

Answer 39

TRUE

Question 40

P = MR = MC at a point ______ than the minimum of point of the AC curve

Answer 40

LOWER

Question 41

Will the firm quit if it is experiencing losses?

Answer 41

No, since loss from quitting is larger than loss from continuing operation

Question 42

When the price falls to the point where P = MC at the minimum point of the ___ curve.

Answer 42

negative profits

Question 43

The firm will produce less at lower prices.

Answer 43

TRUE

Question 44

The firm will continue production even if it is experiencing losses.

Answer 44

true

Question 45

Will not quit the market if the loss from leaving the market (TFC) is bigger than the loss from operating.

Answer 45

True

Question 46

The firm will shut down if P = MR = MC at the minimum point of the AC curve.

Answer 46

False ; AVC

Question 47

firm maximizes profits at the point where...

Answer 47

P = MR = MC

Question 48

Short run supply curve of the firm

Answer 48

True

Question 49

This corresponds to the MC curve of the firm that is above the minimum point of the AVC.

Answer 49

true

Question 50

The entry or exit of firms will stop only when profit is reduced to zero. This is at the lowest point of the LAC curve.

Answer 50

TRUE

Question 51

P = LMC = SMC = LAC = SAC

Answer 51

LONG RUN EQUILIBRIUM