Economics 1021A/B Chapter Notes - Chapter 12: Demand Curve, Competitive Equilibrium, Marginal Utility

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ECON 1021A/B Full Course Notes

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In the short run, a firm must decide: whether to produce or to shut down. If the decision is to produce, what quantity to produce. If the marginal revenue equals marginal cost, economic profit is maximized. In the short run, a firm in perfect competition can make a normal profit, an economic profit, or incur an economic loss: when price equals minimum average total cost, the firm breaks even and makes a normal profit. If the price exceeds the average total cost of producing the profit-maximizing output, the firm makes an economic profit. Each firm takes this price as given, produces its profit-maximizing output, which is 8 sweaters a day, and breaks even. Industry output is 8,000 sweaters a day: now suppose demand increases to d2. The equilibrium price rises to , the new profit-maximizing output for each firm is 9 sweaters a day, and each firm makes an economic profit.

Related Questions

Match the following.

constant-cost industry	A market structure in which a large number of firms sell a homogenous product or service with no restrictions on entry or exit and each firm is a price-taker.
increasing-cost industry	The demand facing a price-taking firm.
long-run equilibrium	A firm produces zero output but must still pay its fixed costs.
marginal revenue product	Price below which a firm shuts down in the short run.
perfect competition	All firms produce where price equals long-run marginal cost, and economic profits are zero.
perfectly elastic demand	Industry in which input prices rise as all firms in the industry expand output.
shut down	Industry in which input prices remain constant as all firms in the industry expand output.
the shut-down price	The additional revenue earned by hiring one more unit of a variable input.

viridianhare336

A firm in perfect competition is a price taker because _______.

A) charging a lower price than the market price is considered uncompetitive.

B) the market price is always the profit-maximizing price.

C) it is easier to take the price as given rather than calculate the profit-maximizing price.

d) it produces a tiny proportion of the total output of a particular good and buyers are well informed about the prices of other firms.

carminecod572

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

tanpig844

Economics 1021A/B Chapter Notes - Chapter 12: Demand Curve, Competitive Equilibrium, Marginal Utility

ECON 1021A/B Full Course Notes

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