ECON CH. 10

4 market models
pure competition,
monopolistic competition,
oligopoly,
pure monopoly

pure competition
very large number of firms,
standardized product,
no control over price (price taker, unique),
conditions of entry- very easy, no obstacles,
no advertising (non price competition),
ex.) agriculture

monopolistic competition
many firms,
differentiated product,
some control over price, but within narrow limits,
conditions of entry- relatively easy
considerable emphasis on advertising, brand names, trade marks,
ex.) retail trade, dresses, shoes

oligopoly
few firms,
standardized or differentiated product,
control over price is limited by mutual inter-dependence; considerable with collusion (unique),
conditions of entry- significant obstacles,
non price competition- typically a great deal, particularly with product differentiation
ex.) steel, auto, farm implements

pure monopoly
one firm,
unique product; no close subs,
considerable control over price,
blocked conditions with entry,
mostly public relation advertising,
ex.) local utilities

firms that operate in a purely competitive industry:
do not differentiate their products

firms within competition are considered to be price _____?
takers

_______ is relatively rare in the real world, although the market model is highly ____ to several industries.
pure competition, relevant

the market structures designated as “imperfect competition” are:
pure monopoly,
oligopoly,
monopolistic competition

which best describes oligopoly?
involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals

which best describes monopolistic competition?
a relatively large number of sellers producing differentiated products and in which entry or exit from the industry is quite easy

which of the following best describes a pure monopoly?
one firm selling a single unique product, where entry of additional firms is blocked and product differentiation is not an issue

which best describes pure competition?
an industry involving a very large number of firms producing identical products and in which new firms can enter or exit the industry very easily

market models are distinguished based upon differences in:
type of product
conditions of energy
the number of firms
non- price competition

what best determines a firm’s decisions regarding price and production?
the industry in which it operates

an oligopoly has _____ sellers and must consider the decisions of its rivals in determining its own _____ and output
few, price

in a purely competitive markets, individual firms do not exert control over_____
price,
demand,
supply

best summarizes why a firm in a purely competitive market will not increase its product price?
asking a price higher than the market price would be futile because consumers could substitute with other perfectly identical products

in a purely competitive industry, buyers view the products of firms B,C,D and E as _____ ________ for the product of firm A
perfect substitutes

within pure competition, an individual firm would not be able to affect ______ in that industry by simply changing its output
price

why is the purely competitive firms demand curve perfectly elastic?
the individual firm is a price taker,
the marginal revenue curve coincides with the firm’s equilibrium price

a purely competitive firm is a price ____.
taker

firms within pure competition will face demand that is:
perfectly elastic

why a firm in a purely competitive market will not lower its product price?
charging a price lower than market price would cause its profits to shrink as its competitors continue to charge the market price

a firm operating in a purely competitive market is a price taker because it:
cannot change market price, it can only adjust to it

best describes the concept of a price taker?
one of a large number of firms producing an identical product as every firm in its industry and only providing a fraction of total market supply

a purely competitive firm can maximize its economic profit (or minimize its loss) only by adjusting its _______.
output

a purely competitive firm’s marginal revenue curve will _______ the firm’s demand curve
coincide with

a purely competitive firm will maximize its profits by producing up to the point where:
the horizontal distance between the total revenue and total cost curves is the greatest

a firm within pure competition will maximize its profit when total cost is maximized over total revenue
false

a purely competitive firm will ask all of the following questions except:
will production result in normal profit?

a purely competitive firm’s horizontal demand curve indicates:
perfect price elasticity

which two ways can a purely competitive firm determine the level of output at which it will realize maximum profit or minimum losses?
by comparing total revenue to total costs,
by comparing marginal revenue to marginal cost

a firm should stop producing if its average _______ cost its _______ _____ price
variable,
greater than

in pure competition, economic profit is calculated as product _____ or ______ revenue minus average total cost multiplied by output
price,
marginal

in a perfectly competitive market, price is _____ __ marginal revenue, therefore, price is _____ ____ marginal cost.
equal to,
equal to

in the initial stages of production, where output is relatively ____, marginal ______ will usually, but not always, exceed marginal ______.
low,
revenue,
cost

a firm should produce any unit of output whose:
marginal revenue is greater than marginal cost

from an economic standpoint, the break-even point is the level of output at which a firm makes _____ profit.
a zero,
a normal

the portion of the firm’s _______ cost curve lying _____ its average _____ cost curve is its short-run supply curve
marginal,
above,
variable

best describes the individual firm’s supply curve?
the individual firm’s supply curve represents a negligible fraction of total supply and therefore cannot affect price

explains why technological progress reduces marginal cost?
because technological progress increases the productivity of labor

a wage increase would increase marginal costs and shift the supply curve:
to the left, upward

what following factors will alter costs and shift the marginal cost or short run supply curve to a new location?
technology,
prices of variable inputs

which are true statements about perfectly competitive firms?
quantity supplied increases in direct response to an increase in product price and desire to maximize profit

at greater levels of output, the higher marginal costa equal the product price and marginal revenue and profit is maximized

because marginal costs ride with increased output, a purely competitive firm must get higher prices to motivate it to produce more output

because of the law of diminishing returns, marginal costs eventually fall as more units of output are produced
false

a firm should produce if:
price is equal to or greater than minimum average total cost, meaning that the firm is profitable or that losses are less than fixed costs

price is equal to or greater than minimum average variable cost, meaning that the firm is profitable or that losses are less than fixed costs

the quantity of a product supplied by a firm in pure competition should _______ as long as price rises
increase

the price at which the firm will break-even or where it earns a normal profit, but not an economic profit?
p4

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