Combined micro chapter 8

question

Many firms, with differentiated products, some control over price, relatively easy to enter.
answer

Monopolistic competition
question

Large number of firms, standardized product, no control over price, very easy to enter
answer

Pure competition
question

MR=MC rule is known as what?
answer

Profit maximizing rule and loss minimizing rule
question

Confronted with market price of its product, the competitive producer will ask what three questions?
answer

Should we produce? In what amount? What’s the economic profit?
question

How do you find the total revenue for each output level?
answer

Multiply output (total product) by price.
question

What are the methods of ways to determine the level of output at which a competitive firm will realize max profit or mini loss?
answer

Comparing TR and TC AND comparing MR and MC
question

Curve MR is horizontal because:
answer

the firm is a price taker.
question

In a competitive industry, no single firm can influence market price. This means that the firm’s demand curve is BLANK BLANK and price equals BLANK BLANK.
answer

perfectly elastic; marginal revenue
question

If price is less than minimum average variable cost, a competitive firm minimizes its loss by BLANK BLANK.
answer

shutting down
question

If price is greater than average total cost, a competitive firm minimizes its loss by producing the BLANK amount of outcome.
answer

P=MC
question

If price also exceeds average total cost, the firm maximizes its economic profit at the BLANK amount of output.
answer

P=MC
question

We can analyze short run profit maximization by a competitive firm by comparing BLANK BLANK and BLANK BLANK or by applying BLANK BLANK.
answer

total revenue; total cost; marginal analysis
question

Provided price exceeds minimum average variable cost, a competitive firm maximizes profit or minimizes loss in the short-run by producing the BLANK at which price or marginal revenue equals marginal cost.
answer

Output
question

Applying the MR(=P)=MC rule at various possible market prices leads to the conclusion that the segment of the firm’s short run marginal-cost curve that lies above the firm’s average-variable-cost curve is its BLANK BLANK BLANK BLANK.
answer

Short-run supply curve
question

A competitive firm shuts down production at least temporary if price is BLANK than minimum average variable cost.
answer

less
question

A competitive firm shuts down production at least temporary if price is less than BLANK BLANK BLANK BLANK
answer

minimum average variable cost
question

“Involves only a few sellers of a standardized of differentiated product, so each firm is affected by the decisions of its rival”
answer

Oligopoly
question

In pure competition, to calculate economic profit, we first calculate the difference between product BLANK or BLANK (average) revenue and average total cost and then multiply it by output.
answer

price; marginal
question

“One firm selling a single unique product, where entry of additional firms is blocked and product differentiation is not an issue”
answer

Monopoly
question

From an economic standpoint, the break-even point is the level of output at which a firm makes BLANK or a BLANK profit.
answer

zero; a normal
question

A purely competitive firm’s average-revenue schedule is also known as its BLANK BLANK.
answer

Demand Schedule
question

In a purely competitive market, price per unit to the purchaser is synonymous with BLANK per unit or BLANK revenue to a seller.
answer

revenue; average
question

This rule is an accurate guide to profit maximization for all firms regardless of their market structure.
answer

MR=MC rule
question

This rule applies only if producing is preferable to shutting down.
answer

MR=MC rule
question

This rule can be re-stated as P=MC when applied to a purely competitive firm because product price and MR are equal.
answer

MR=MC rule
question

We study pure competition because it:
answer

produces ideal results in terms of low-cost production and allocative efficiency, and can be used as a basis of comparison.
question

pure competition
answer

very large number of firms, no control over price, no nonprice competition
question

pure monopoly
answer

one firm, unique product, much control over price
question

monopolistic competition
answer

differentiated products, many firms, some price control
question

oligopoly
answer

few firms, standardized products, many obstacles to entry, no control over price
question

Why do the demand curve and marginal revenue curve have the same shape?
answer

Demand is perfectly elastic; MR is constant and equal to P.
question

Consider the statement: “Even if a firm is losing money, it may be better to stay I business in the short run.” This statement is
answer

true if the loss is less than the variable cost.
question

The firm should produce in the short run so long as the price
answer

is less than the average variable cost.
question

Consider a firm that has no fixed costs and which is currently losing money. Are there any situations in which it would want to stay open for business in the short run?
answer

Yes, the firm will operate if revenue is greater than the variable cost.
question

A firm with no fixed cost
answer

…..
question

The equality of marginal revenue and marginal revenue is essential for profit maximization in al market structures because when this is true the
answer

question

When an industry is purely competitive, price can be substituted for marginal revenue in the MR = MC rule because
answer

the demand curve is perfectly elastic and the price is constant regardless of the quantity demanded, so the MR is constant and equal to the price.
question

four market models
answer

pure competition pure monopoly monopolistic competition oligopoly
question

pure competition
answer

very large number of sellers, standardized product, easy entry and exit, price takers (sellers that have no pricing power)
question

purely competitive demand
answer

perfectly elastic demand, the firm has no power to influence price so the firm merely chooses to product a certain level of output at the price that is given
question

pure monopoly
answer

one firm, unique product, much control over the price
question

average revenue
answer

total revenue/quantity
question

total revenue
answer

price x quantity
question

marginal revenue
answer

change in total revenue/change in quantity
question

profit maximization
answer

should the firm produce(in the short run)? if so, in what amount? what economic profit (loss) will be realized?
question

loss minimization
answer

in the short run the firm only have two choices, to produce or shut down
question

monopolistic competition
answer

differentiated products, many firms, some price control
question

oligopoly
answer

few firms, standardized products, many obstacles to entry
question

We study pure competition because it
answer

produces ideal results in terms of low-cost production and allocative efficiency, and can be used as a basis of comparison
question

Consider the statement: “Even if a firm is losing money, it may be better to stay in business in the short run.” This statement is
answer

true if the loss is less than the fixed cost
question

The firm should produce in the short run so long as the price
answer

is less than the average variable cost
question

Consider a firm that has no fixed costs and which is currently losing money. Are there any situations in which it would want to stay open for business in the short run?
answer

No, the firm will want to shut down
question

A firm with no fixed cost
answer

is really in the long run
question

The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because when this is true the
answer

last unit produced adds more to revenue than to costs, and its production must necessarily increase profits or reduce losses
question

When an industry is purely competitive, price can be substituted for marginal revenue in the MR = MC rule because
answer

the demand curve is perfectly elastic and the price is constant regardless of the quantity demanded, so the MR is constant and equal to the price
question

If a firm’s current revenues are less than its current variable costs, it should shut down
answer

immediately
question

If a firm’s current revenues are less than its current variable costs and it decides to shut down, this decision
answer

may be temporary until the price of the product increases
question

Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is:
answer

A horizontal line at 2 cents per paper clip
question

A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which
answer

TR exceeds TC by as much as possible. correct
question

If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which:
answer

MR = MC
question

A perfectly competitive firm that makes car batteries has a fixed cost of $10,000 per month. The market price at which it can sell its output is $100 per battery. The firm’s minimum AVC is $105 per battery. The firm is currently producing 500 batteries a month (the output level at which MR = MC). This firm is making a _____________ and should _______________ production.
answer

loss; shut down
question

Consider a profit-maximizing firm in a competitive industry. Under which of the following situations would the firm choose to produce where MR = MC?
answer

Minimum AVC < P minimum ATC.
question

T or F: Marginal revenue is the change in total revenue associated with additional units of output.
answer

TRUE

Get instant access to
all materials

Become a Member