chapter 12 – Flashcards

What conditions make a market perfectly​ competitive? A market is perfectly competitive if

What are the three conditions for a market to be perfectly​ competitive? For a market to be perfectly​ competitive, there must be

What is a price​ taker? A price taker is

When are firms likely to be price​ takers? A firm is likely to be a price taker when

​"According to the model of perfectly competitive markets ​, the demand for wheat should be a horizontal line. But this​ can't be​ true: When the price of wheat​ rises, the quantity of wheat demanded​ falls, and when the price of wheat​ falls, the quantity of wheat demanded rises.​ Therefore, the demand for wheat is not a horizontal​ line."

How are prices determined in perfectly competitive markets ​? In perfectly competitive​ markets, prices are determined by

What characterizes perfectly competitive​ markets? Perfectly competitive markets have

A buyer or seller that is unable to affect the market price is called

How should firms in perfectly competitive markets decide how much to​ produce? Perfectly competitive firms should produce the quantity where

Explain why it is true that for a firm in a perfectly competitive market that P​ = MR​ = AR. In a perfectly competitive​ market, P​ = MR​ = AR because

Which of the following statements is true when the difference between TR and TC is at its maximum positive​ value?

Explain why it is true that for a firm in a perfectly competitive​ market, the​ profit-maximizing condition MR​ = MC is equivalent to the condition P​ = MC. When maximizing​ profits, MR​ = MC is equivalent to P​ = MC because

Suppose Farmer Lane grows and sells cotton in a perfectly competitive industry. The market price of cotton is ​$1.62 per​ kilogram, and his marginal cost of production is ​$1.56 per​ kilogram, which increases with output. Assume Farmer Lane is currently earning a profit. Can Farmer Lane do anything to increase his profit in the short​ run? Farmer Lane

A firm producing good Y recently increased monthly production from​ 1,500 units to​ 2,000 units. This had no impact on the market price of good Y. At the new production level of​ 2,000 units, the​ firm's average cost is​ $3.5 while its marginal cost of production is​ $4. The marginal revenue however is fixed at​ $5 for all levels of output. Jake Williamson is the operations head of the firm. Jake feels​ that, since the firm has the​ capacity, it should have increased production further to​ 2,500 units which would have maximized profits. On the other​ hand, Mathew Hayden of the market research team anticipates an increase in price to​ $5.5 in the near future. He therefore claims that the firm may not be maximizing economic profit in the short run even at​ 2,500 units. Which of the following is most strongly implied by this​ information? Jake and Mathew will most likely agree on which of the​ following? Mathew is assuming​ that:

Which of the following is an expression of profit for a perfectly competitive​ firm? Profit for a perfectly competitive firm can be expressed as Which of the following is an expression of profit for a perfectly competitive​ firm? Profit for a perfectly competitive firm can be expressed as

A startup firm in a perfectly competitive market finds that its average total cost is higher than the market price. Since the firm is incurring​ short-run losses, the management is debating whether to continue operations. Alex​ Ferguson, a senior​ manager, feels that this is a temporary phase and the firm should continue operations. Which of the​ following, if​ true, would support​ Alex's argument?

What is the supply curve for a perfectly competitive firm in the short​ run? The supply curve for a firm in a perfectly competitive market in the short run is

According to an article in the New York Times​, interest payments on bank loans make up more than half the costs of the typical solar panel manufacturer. The owner of a firm that imports solar panels made this observation about solar panel​ manufacturers: ​"So as long as companies can cover their variable costs and earn at least some revenue to put toward interest​ payments, they will continue to operate even at a​ loss." ​Source: Diane​ Cardwell, "Solar Tariffs​ Upheld, but May Not Help in​ U.S.," New York Times​, November​ 7, 2012. The interest payments these firms make are a The quote describes logical behavior of solar panel firms in the

Suppose you decide to open a copy store. You rent store space​ (signing a​ one-year lease), and you take out a loan at a local bank and use the money to purchase 10 copiers. Six months​ later, a large chain opens a copy store two blocks away from yours. As a​ result, the revenue you receive from your copy​ store, while sufficient to cover the wages of your employees and the costs of paper and​ utilities, doesn't cover all of your rent and the interest and repayment costs on the loan you took out to purchase the copiers. Should you continue operating your​ business?

What determines entry and exit of firms in a perfectly competitive industry in the long​ run? In a perfectly competitive industry in the long​ run

When are firms likely to enter an​ industry? When are they likely to​ exit?

Would a firm earning zero economic profit continue to​ produce, even in the long​ run? In​ long-run competitive​ equilibrium, a firm earning zero economic profit

A student in a principles of economics course makes the following​ remark: ​"The economic model of perfectly competitive markets is fine in theory but not very realistic. It predicts that in the long​ run, a firm in a perfectly competitive market will earn no profits. No firm in the real world would stay in business if it earned zero​ profits." Is this remark correct or​ incorrect?

In July​ 2011, National Public Radio ran a story about the new gold rush. It​ reported: The price of gold in the international market is steadily​ rising: more than fivefold in the past decade alone.​ It's currently selling for about​ $1,500 an​ ounce, paving the way for a new gold rush. Ten old mines have reopened in remote mountain and desert areas of the American West over the past decade. ​Sources: Ruxandra​ Guidi, "Mining Companies on Quest to Cash in on​ Gold," National Public​ Radio, July​ 7, 2011; Jeanne​ Baron, "Gold Fever Draws African Farmers from​ Fields," National Public​ Radio, July​ 2, 2011;​ "China Mining​ Company, Zijin Mining Group to Expand Gold Mines Exploration in ​Australia,"Mining Exploration​ News, August​ 2, 2011; and​ "Sixteen New Firms to Prospect for Gold in​ Turkey's Kaz​ Mountains," Hurriyet Daily​ News, August​ 22, 2011. The new gold rush is not just in​ America,. It is in​ Australia, Africa,​ Asia, and elsewhere. So many firms around the globe are now mining for gold because The story describes a new gold rush. Why​ hadn't all the gold already been​ discovered? For a given demand for​ gold, over time the entry of all these firms into gold mining will

Does the market system result in allocative​ efficiency? In the long​ run, perfect competition

Assume the market for oranges is perfectly competitive. If the demand for oranges​ increases, will the market supply additional​ oranges? If the demand for oranges​ increases, then the market

Does the market system result in productive​ efficiency? In the long​ run, perfect competition