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Terms in this set (140)Which of the following are considered to be the four basic market structures? Pure monopoly Pure ______ involves a very large number of firms. competition Match each market structure with the description that best describes the conditions for exit and entry into that industry. very easy, no obstacles matches purely competitive relatively easy matches monopolistically competitive significant obstacles matches oligopoly blocked matches monopoly Match each market structure with the correct description of how price control is exerted. none matches purely competitive some, but within narrow limits matches monopolistically competitive limited by mutual interdependence considerable control matches monopoly Match each market structure with the correct type of product that it produces. standardized product matches purely competitive differentiated product matches monopolistically competitive standardized or differentiated matches oligopoly unique, no close substitute matches monopoly Economists group industries into distinct market structures. 4 Match the market models based on the number of firms present in each model. very large number matches pure competition relatively large number matches monopolistic competition few matches oligopoly one matches monopoly Which of the following 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. Which market structure has the fewest obstacles to entry or exit? Pure competition Which of the following best describes a pure monopoly? One firm selling a single unique product, where entry of additional firms is blocked and there is considerable control over price The market structure in which individual firms have the least amount of control over price is ______, whereas in ______ a single firm has significant control over price. pure competition; pure monopoly Which of the following is a characteristic of a monopolistically competitive market? A relatively large number of sellers producing differentiated products In which type of market structure does a single firm produce a unique product with no close substitutes? Pure monopoly Which of the following 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. A purely competitive industry has a very ______ number of sellers, whereas the other three market structures reflect a progressively ______ or ______ number of sellers. large; smaller; decreasing The market structures designated as "imperfect competition" are: pure monopoly; oligopoly; monopolistic competition Which of the following are conditions necessary to have pure competition? standardized product In which market model do firms rely on product differentiation to distinguish themselves from the competition? monopolistic competition Which of the following market structures produces only a standardized product? A purely competitive market Which of the following best summarizes why firms in purely competitive industries do not differentiate their products? Because there are so many of them selling a standardized product Which of the following features occur in a purely competitive market? Sales in both national and international
markets. In purely competitive markets, an individual firm lacks control over which factor? Product price Which of the following best describes the situation of a price-taking firm? large; only a fraction Which statement about obstacles to selling in a purely competitive market is true? There are no significant obstacles to selling. Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic? The
firm does not need to lower its price to increase its sales volume. A firm operating in a purely competitive market is a price taker because it ______. cannot change the market price, it can only adjust to it The market demand curve for a purely competitive industry: slopes downward Which action would increase market price in a purely competitive market? All firms reducing output simultaneously Which of the following explains why a purely competitive firm is a price taker? A purely competitive firm offers only a negligible fraction of total market supply and therefore must accept the price determined by the market In pure competition the demand curve faced by an individual firm graphs as a(n) ______ line and the market demand in pure competition is graphed as a(n) ______ curve. horizontal; downward sloping In a purely competitive market, price per unit to a buyer equals: average revenue to a seller In pure competition, marginal revenue and are equal. (Remember to type only one word per blank.) price A purely competitive firm's demand schedule is equal to which of the following? average revenue In pure competition, if the first unit of output sold increases total revenue from $0 to $131, marginal revenue for that unit is $131. If the second unit sold increases total revenue from $131 to $262, marginal revenue is again $131. The third unit sold increases total revenue to $______ and marginal revenue is now $______. 393; 131 A purely competitive firm's total revenue curve will have a constant slope because each extra unit of sales increases total revenue by a constant amount A purely competitive firm's average revenue curve is equal to or coincides with which of the following? Demand curve In the short run, a purely competitive firm can maximize its economic profit (or minimize its loss) by adjusting its ___. output The two ways to determine the level of output at which a firm will realize maximum profit or minimum loss are to compare total revenue to ______ and to compare marginal revenue to ______. total cost; marginal cost The equation for determining economic profit or loss is ______ minus ______. total revenue; total cost True or false: Because of the law of diminishing returns, marginal costs eventually fall as more units of output are produced. False From an economic standpoint, the break-even point is the level of output at which a firm makes a(n) ______ profit. normal What are two ways that a purely competitive firm can determine the level of output at which it will realize maximum profit or minimum losses? By comparing total revenue to total costs A purely competitive firm will maximize its profits by producing up to the point where the vertical distance between the total revenue and total cost curves is the greatest. In the table, total economic profits at the profit-maximizing level of output are calculated as a total revenue of $______ minus approximate total costs of $______. 1179; 880 Because of the law of diminishing returns, marginal costs ______ at a(n) ______ rate at higher levels of output. increase; increasing Which of the following best describes marginal revenue? The revenue that an additional unit of output contributes to total revenue. Which of the following indicates the profit-maximizing level of output? The vertical distance between the total revenue and total cost curves Which of the following explains why a firm would not produce a unit of output where MC exceeds MR? Producing it would add more to costs than to revenue, and profit would decline or loss would increase A firm would not produce a unit of output where ______. marginal cost exceeds marginal revenue In the initial stages of production, where output is relatively low, marginal revenue will usually ______ marginal cost. exceed Which of the following are true about the profit-maximizing rule of MR = MC? The rule applies only if producing is preferable to shutting down. The rule can be restated as P = MC when applied to a purely competitive firm because product price and MR are equal. The rule is an accurate guide to profit maximization for all firms regardless of their market structure. In a purely competitive industry, at the profit-maximizing or loss-minimizing level of output, marginal ______ is equal to ______. cost; price The MR = MC rule can be applied to ______ firms; however, the rule can be restated as P = MC only when applied to ______ firms. all; purely competitive Which of the following is a method of calculating economic profit in pure competition? Price minus average total cost multiplied by quantity Based on the graph, what happens at a price of $131 and 7 units of output? Per-unit profit is maximized but total profit is not. Based on the information given in the table, which of the following statements are true? Every unit of output up to and including the ninth unit represents greater marginal revenue than marginal cost. The ninth unit of output is the profit-maximizing level of output. This graph illustrates that a firm can minimize its losses by producing where ______. price exceeds minimum average variable cost but is less than average total cost Which of the following improves as production increases? Price-marginal cost relationship In maximizing profits at 9 units of output, the firm in this graph is adhering to which of the following rules? Produce to the point where additional units of output add positively to total profit. A firm would not stop producing if the loss is less than its ______ costs. fixed Which of the following best explains why the price-marginal cost relationship improves as production increases? At the very early stages of production, marginal product is low, making marginal cost unusually high. In this graph, a firm incurs a loss but continues to operate because price is ______ than the lowest average total cost but above the lowest average ______ cost. less; variable Based on the graph, what happens at a price of $131 and 7 units of output? Per-unit profit is maximized but total profit is not.
Which of the following best explains why a purely competitive firm would not stop producing if the loss is less than its fixed costs? Fixed costs are paid regardless of whether something or nothing is produced, and the firm receives enough revenue per-unit to cover AVC and some FC. Whenever price is ______ average variable costs but is ______ average total costs, the firm can pay part, but not all, its fixed costs by producing. greater than; less than A firm should always stop producing if its average ______ cost is ______ price. variable; greater than Which of the following statements is true of the firm represented by this graph? The firm incurs a loss but should continue to operate because price exceeds the lowest average variable cost. In which scenario can a firm pay part, but not all, of its fixed costs and should therefore continue producing even though it is experiencing a loss? Price exceeds average variable cost but is less than average total cost. In the short run, a purely competitive firm will maximize profit by producing up to the point where marginal revenue is equal to marginal cost only if which of the following is true? Market price exceeds minimum average variable cost. Within pure competition, a supplier will ______ production as price rises, as long as marginal cost is less than marginal revenue. increase The quantity of a product supplied by a firm in pure competition should _____ as long as price rises. increase True or false: A purely competitive firm in the short run will maximize profit by producing up to the point where marginal revenue is equal to marginal cost if the market price is less than minimum average variable cost. False At which point will a firm be indifferent whether to shut down or continue to produce? point b The supply schedule for a purely competitive firm confirms that there is a direct relationship between which two factors? Product price and quantity supplied True or false: Quantity supplied increases as price decreases, and economic profit is usually higher at lower product prices and output. false Between P2 and P4, the firm will minimize its losses by producing and supplying the quantity at which: MR=P=MC When will a firm earn an economic profit? When price is greater than average total cost. Which of the following factors will alter costs and shift the marginal cost or short-run supply curve to a new location? Technology A wage ______ would raise marginal cost and shift the supply curve _______. increase; upward In this graph, the firm's short-run supply curve is represented as the portion above point ______. b In which scenario will production result in an economic profit? Price exceeds average total cost. What are the effects of technology on the firm and its short-run supply curve? Marginal costs decrease. A wage increase would increase marginal costs and shift the supply curve: upward The shaded box in this graph represents the firm's _______, economic profit calculated as (P-ATC)Q Which of the following explains why technological progress reduces marginal cost? Technological progress increases the productivity of labor. Which of the following statements about product price are true? Product price is a given fact for the individual firm. Assume that there are 100 identical firms in an industry that produces a product with a market price of $10. Each firm has an average total cost of $2 and an equilibrium output of 10 units. What is the industry's economic profit? $8,000 What is the primary difference between the individual firm's supply curve and the industry supply curve? The individual supply curve has no effect on price, whereas the industry supply curve has an important bearing on price. Which of the following occur only in the long-run? The expansion or contraction of plant capacity Which of the following is a given fact to the individual competitive firm, but a basic determinant of quantity supplied for the entire competitive industry? Product price In the short run, a competitive industry is composed of a ______ number of firms, each with a ______, unalterable plant size. specific; fixed Which of the following describes the individual competitive firm's supply curve? The individual firm's supply curve represents a negligible fraction of total supply and therefore cannot affect price. After all long-run adjustments are completed in a perfectly competitive market, output will occur at each firm's minimum average ______. total cost where product price is equal to marginal revenue Economists maintain that new firms are attracted into an industry due to: economic profits If the market price exceeds the firm's minimum average total cost (ATC), then it will ______. incur an economic profit If market price initially exceeds minimum average total costs, the resulting economic profit will attract new firms to the industry which will eventually result in _____. industry expansion that increases supply until price equals minimum average total cost (ATC) Which of the following conditions may or will cause firms to exit an industry? Price is less than minimum average total cost. In this graph, the equilibrium price is $50 and is equal to a firm's average total cost. Therefore, the firm is earning ______ economic profits, or a(n) ______ profit. zero; normal If price is initially less than minimum average total cost, resulting losses will cause firms to leave the industry eventually resulting in _____. industry contraction that decreases supply until price rises again to equal minimum average total cost (ATC) Why will firms choose not to enter an industry when marginal revenue, marginal cost, price, and average total cost are equal? Existing firms are earning only normal profits. When long-run equilibrium is reached, firms will earn a(n) ______ profit. normal Which of the following will cause new firms to enter an industry? Market price exceeds minimum average total costs. There is no incentive for firms to enter or exit the industry in the long run when ______. MR = MC Economic profit will fall to zero and firms will choose not to enter an industry when price is equal to which of the following factors? Marginal cost If demand for the good decreases creating economic losses, firms will exit the industry in the long run. As firms exit in the long run, industry supply will ______ and market price will ______. decrease; rise Which firm would be most likely to exit an industry first if demand were to decline? An unproductive firm with high costs A constant-cost industry is one where ______ will not affect resource prices and production costs. expansion or contraction This figure represents a constant-cost industry where the entry or exodus of firms does not affect resource prices or unit costs. Therefore, in the long run, a decrease in demand causes ______. a contraction of output but no change in price An unfavorable shift or ______ in demand will upset the original industry equilibrium and produce ______. decrease; losses If there are losses in the long run, what adjustments will take place? Firms will exit the industry until losses are eliminated.
This figure represents a constant-cost industry where the entry or exodus of firms does not affect resource prices or unit costs. Therefore, an increase in demand causes ______. an expansion in industry output but no alteration in price Which of the following does an increasing-cost industry experience? A downward shifting average total cost (ATC) curve as
the industry contracts. Higher resource prices will result in ______ total costs. higher average The entry of new firms entering an increasing-cost industry increase resource prices particularly: in industries using specialized resources whose long-run supplies do not readily increase in response to increases in resource demand The shape of the long-run supply curve for a constant-cost industry can best be described as: horizontal An industry whose average total cost curve shifts upward as the industry expands and shifts downward as the industry contracts is known as a(n) ______ industry. increasing-cost In an increasing-cost industry, which of the following occur when an increase in product demand results in economic profits and attracts new firms to the industry? Increased resource demand drives up resource prices. True or false: Higher resource prices create lower ATC and cause an upward shift of the long-run ATC curve. False This figure represents an increasing-cost industry where the entry of new firms in response to an increase in demand will bid up resource prices and thereby increase per-unit costs. As a result ______. an increased industry output will be forthcoming only at higher prices A decreasing-cost industry is one in which firms experience ______ costs as their industry ______. (Check all that apply.) lower; expands Which of the following would describe the personal computer industry as a decreasing-cost industry? As demand for computers rose, producers of the components experienced economies of scale. Which of the following is downward-sloping? The long-run supply curve of a decreasing-cost industry. Which of the following does a decreasing-cost industry experience? Lower costs as industry output expands. In the personal-computer industry, increasing output drives up demand for computer parts. Suppliers of these parts respond by increasing production, and economies of scale eventually drive down the prices of the parts they produce, lowering the average cost of production for computer manufacturers. This is an example of a ____-cost industry. decreasing What is the shape of the long-run supply curve in a decreasing-cost industry? downward-sloping Whether a purely competitive industry is a constant-cost industry or an increasing-cost industry, the final long-run equilibrium position of all competitive firms share which of the following characteristics? Price or marginal revenue will settle where it is equal to minimum average total cost. In the long run, a multiple equality occurs where price equals marginal cost which equals the minimum average total cost. In the long run, an equality occurs where price equals marginal revenue, which equals minimum average total cost. In the figure, the equality of P, MC and minimum ATC ______. illustrates the productive and allocative efficiency of pure competition In the long run, purely competitive firms will not survive if they do not use a least-cost production method because ______. pure competition forces firms to produce at the minimum average total cost (ATC) and to charge a price that is consistent with that cost In this figure, the equality of price (P), marginal cost (MC) and minimum average total cost (ATC) at output Qf, indicates which of the following? That the firm is achieving productive and allocative efficiency Competitive market economies generate ______. productive efficiency A purely competitive market leads to the efficient use of: society's scarce resources In pure competition, society's resources are allocated efficiently when profit-motivated firms produce output to the point where ______. price or marginal revenue (MR) and marginal cost (MC) are equal Which of the following statements are true about allocative efficiency? It is impossible to produce net gains for society by altering the mix of goods and services produced. The marginal cost and marginal benefit of producing each unit of output is equal. The goods and services produced are those that society most wants to consume. Which of the following describes producer surplus? It is the difference between the actual price producers receive for a product and the minimum price producers are willing to accept for the product. How does a purely competitive market restore allocative efficiency when an increase in demand disrupts efficiency? New firms enter and increase industry output until price and marginal cost are equal. The blue shaded area in this figure represents ___. producer surplus What are the effects of the "invisible hand" in a purely competitive economy? Resource allocation that maximizes consumer satisfaction In purely competitive markets, efficiency can be temporarily disrupted and then restored by changes in: technological changes. The dominant position of wagons, ships, and barges was undermined by the railroad system, which in turn was undermined by trucks and later airplanes. This best exemplifies ______. creative destruction Strategies attempted by firms for increasing their profits include: developing a new product that is popular with consumers. 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Is a purely competitive firm perfectly elastic?All goods in a perfectly competitive market are considered perfect substitutes, and the demand curve is perfectly elastic for each of the small, individual firms that participate in the market. These firms are price takers–if one firm tries to raise its price, there would be no demand for that firm's product.
What is the demand curve of a purely competitive firm?A perfectly competitive firm's demand curve is a horizontal line at the market price. This result means that the price it receives is the same for every unit sold. The marginal revenue received by the firm is the change in total revenue from selling one more unit, which is the constant market price.
What does the demand curve look like for a perfectly competitive firm quizlet?the demand curve for a perfectly competitive firm is completely elastic and a horizontal line. Monopolistically competitive demand curve is downward sloping and is more elastic than monopoly because there are more substitutes.
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Which factors illustrate that the demand curve for a purely competitive firm is perfectly elastic quizlet?
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