ch.7 Quiz Pure Competition

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Pure competition
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involves a very large number of firms producing a standardized product. New firms can enter and exit very easily.
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Monopolistic competition
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a relatively large number of sellers producing differentiated products
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Oligopoly
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a few sellers of a standardized or differentiated product. Each firm is affected by the decisions of its rivals
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Non-price competition
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a selling strategy in which one firm tries to distinguish its product from competitors
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Pure monopoly
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one producer is the only seller of a product for which there are no substitutes
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Characteristics of pure competition
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very large numbers (a lot of independently acting sellers), standardized products, “price takers” (do not exert control over price, can only adjust to it), free entry and exit
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The demand schedule faced by the individual firm in a purely competitive industry is ______ at the market price
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perfectly elastic
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Market demand graphs as a ______
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down-sloping curve
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The demand curve of an individual competitive firm graphs as _______
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a horizontal line
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Price per unit equals ______
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revenue for the seller
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Total revenue is found by ______
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multiplying price by the corresponding quantity
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Marginal revenue is found by _______
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calculating the change in total revenue that results form selling one more unit of output
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Total revenue graphs as _______
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a straight line that slopes constantly upward to the right
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In the short run the firm has a ____ plant
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fixed
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In the short run, the firm can only adjust its output through _____
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changes in the amount of variable resources
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In the short run, the firm will max. profit or min. loss by _____
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producing the output a which MR = MC
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MR = MC rule applies only if ______
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producing is preferable to shutting down
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In a purely competitive firm, the MR = MC rule can be restated as
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P = MC
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Economic profit is calculated by _____
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(product price – cost) * output
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Loss minimizing case
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Whenever price exceeds the total variable costs and is less than the average total costs, the firm can pay part of its fixed costs by producing
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Economic profit is higher at ____ prices
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higher
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Quantity supplied increases as price ____
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increases
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If price is below the firm’s average variable costs then _____
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it should shut down
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To break even, the firm will ____
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operate where MR = MC and earn a normal profit but not a economic profit
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weaker market demand or stronger market supply could shift ____
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the break even line downward
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A basic determinant of product price is ____
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the supply plans of all competitive producers as a group
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Constant cost industry
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the entry and exit of firms does not affect resource prices or the average total cost curves of individual firms
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The only long run adjustment is _____
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the entry or exit of firms
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Identical costs
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All firms in the industry have identical cost curves
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After all long run adjustments are made, product price will equal ______
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the firms minimum total average cost

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