Economics ECON S - 1920 Lecture Notes - Lecture 1: Average Variable Cost, Market Power, Perfect Competition

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nicolk

15 Dec 2021

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Harvard University

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Economics

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Economics ECON S - 1920

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Average cost: total cost divided by the number of units. Average variable cost: variable cost divided by total output. Perfect competition in economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product: what is the assumption of price-taking behaviour. A firm that is operating in a perfectly competitive market will be a price- taker. A price-taker cannot control the price of the good it sells; it simply takes the market price as given. The conditions that cause a market to be perfectly competitive also cause the firms in that market to be price- takers. When there are many firms, all producing and selling the same product using the same inputs and technology, competition forces each firm to charge the same market price for its good.

Related Questions

1. A firm's total cost of producing 50 units of output is $1,000. At this output level, average fixed costs are equal to $10. It follows that the firm's average variable costs are equal to _____.

2. To maximize profits, a price-taking (i.e., competitive) firm should produce its output up to the level where

a. the market price of the firm's product is equal to its total variable cost.

b. the market price of the firm's product is equal to its s total cost.

c. the market price of the firm's product is equal to its marginal cost.

d. marginal cost is equal to average cost.

e. none of the above.

3. To minimize losses, a competitive firm should shut down if the price is less than

a. average cost.

b. average variable cost.

c. total cost.

d. marginal cost.

e. average total fixed cost

orchidminnow543

A perfectly competitive ï¬rm will shut down immediately when the market price falls below
(a) average variable cost.(b) average total cost.(c) average ï¬xed cost.(d) marginal cost.(e) None of the above.

Which of the following is not necessarily a characteristic of perfect competition? (Points: 1)

low prices
a large number of buyers and sellers
a homogeneous product
perfect information

2. In the short run, a perfectly competitive ball bearing manufacturer will continue to produce at a loss if (Points :1)
it is covering all of its variable cost plus part of its fixed cost

it is covering all of its fixed cost
variable cost is less than the fixed cost
fixed cost is zero

3. The golden rule of profit maximization states that any firm maximizes profit by producing where (Points :
marginal revenue equals marginal cost
demand is unit elastic, and total revenue is the greatest
price equals marginal revenue
price equals marginal cost

4. Which of the characteristics of perfect competition assures that economic profit will be zero in the long run? (Points: 1)
There are easy entry and exit in the market.
Each firm is a price taker.
Each firm has access to perfect information.
Each firm is small relative to the market.

5. A constant-cost industry is distinguished by the fact that(Points: 1)
firms' short-run average total costs are horizontal
firms' short-run marginal cost curves are horizontal
the long-run industry supply curve is perfectly elastic
the short-run industry supply curve is perfectly elastic

6. Commodity products are (Points: 1)
pasteurized
bland
perceived by consumers to be identical
made by one manufacturer

7. In a perfectly competitive industry we are likely to find(Points: 1)
firms producing a wide variety of products
barriers to entry
no profit possible in the short run
firms that do not advertise

8. Perfectly competitive firms are price takers because (Points :1)
all small firms must take the price set by the largest firm in the market
firms take the price that government determines is a "fair" price
each firm is small and goods are perfect substitutes for one another
free entry and exit in the short run creates a constant market price in the long run

9. In perfect competition, if one firm raises its price, (Points :1)
others will follow
that firm will increase its revenues
that firm will lose revenues because other firms will not follow
all consumers will be adversely affected

10. Suppose, at its present rate of output, a perfectly competitive firm's marginal revenue exceeds both its marginal cost and its average variable cost. To maximize profit, the firm should (Points: 1)
lower the price
raise the price
increase output
reduce output

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Economics ECON S - 1920 Lecture Notes - Lecture 1: Average Variable Cost, Market Power, Perfect Competition

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