# Econ Unit 14

For any competitive market, the supply curve is closely related to the
firm’s costs of production in that market
Which of the following statements regarding competitive firm is correct
for all firms, average revenue equals the price of the good
when a competitive firm doubles the amount of output it sells, its
total revenue doubles
Suppose that a firm operating in a perfectly competitive market sells 400 units of output at a price of \$4 each. Which of the following statements in correct?
1.) Marginal revenue equals \$4
3.) total revenue equals \$1600
suppose that a firm operating in a perfectly competitive market sells 100 units of output. Its total revenue from the sale are \$500. Which of the following statements is correct?
1.) marginal revenue equals \$5
2.) average revenue equals \$5
3.) price equals \$5
for a firm operating in a competitive market, the price is (chart)
\$7
for a firm operating in a competitive market, the marginal revenue is (chart)
\$7
for a firm operating in a competitive market, average revenue is (chart)
\$7
The price and quantity relationship in the table is most likely that faced by a firm in a
competitive market
One of the defining characteristics of a perfectly competitive market is
a similar product
which of the following is a characteristic of a perfectly competitive market
firms are price takers
a market is competitive if
firms have the flexibility to price their own products
each seller is small compared to the market
which of the following represents the firms long run condition for exiting the market
P
a firm that exits the market has to pay
neither its variable costs or fixed
in the long run, a profit maximizing firm will choose to exit the market when
total revenue is less than total cost
which line segments best reflects the short-run supply curve for this firm
ABCF
if the firm is in a short run position where P
AB
when economists refer to a production cost that has already been committed and cannot be recovered, they use the term
sunk cost
if the market price is \$10, this firm will (chart)
produce four units in the short run
when the restaurant stays open for lunch service even though few circumstances patronize the restaurant for lunch, which of the following principles are best demonstrated
fixed costs are sunk in the short run
if revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch
firms will be encouraged to enter this market for all prices that (chart 14-5)
exceed P3
firms will earn positive profits in the short run if the market price (chart 14-5)
exceeds p3
firms will earn losses in the short run but will remain in business if the market price
is greater than P1 but less than P3
firms will shut down in the short run if the market price
is less than P1
to maximize its profits, the firm should (scenario)
increase its output
At Q=1000, the firms profits equal (scenario)
\$5000
At Q=999, the firms total cost amounts to (scenario)
\$24,980
At Q=999, the firms profits equal (scenario)
\$4,990
At a production level of four units, which of the following is true? (chart)
total revenue is greater than variable cost
In order to maximize profit, the firm will produce a level of output where marginal revenue is equal to (chart)
\$9
In order to maximize profit, the firm will produce a level of output where marginal cost is equal to (chart)
\$9
the maximize profit available to this firm (chart)
\$5
if the firm finds that its marginal cost is \$5, it should chart)
increase production to maximize profit
comparing marginal revenue to marginal cost
1.) reveals the contributions of the last unit of production to total profit
2.) is helpful in making profit-maximizing production decisions
when market price is P7, a profit-maximizing firms short-run profits can be represented by the area (graph)
(P7-P5)xQ3
if the market price is higher than P1 but less than P4, individual firms in a competitive will even (graph)
short-run losses but will remain in business
if the market price is higher than P4 but less than P6, individual firms in a competitive industry will earn (graph)
positive profits in the short run
if the market price is P4, individual firms in a competitive industry will earn (graph)
zero profits in the short run
firms would be encourage to enter this market for all prices that (graph)
exceed P4
when market price is P2, a profit maximizing firm’s losses can be represented by the area (graph)
at the market price of P2 the firm has losses, but the reference points in the figure do not identify the losses.
if the price in P1 in the short run, what will happen in the long run? (graph)
individual firms will earn positive economic profits in the short run, which will entice other firms to enter the market
if the price is P2 in the short run, what will happen in the long run? (graph)
nothing. the price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry
if the price is P3 in the short run, what will happen in the long run? (graph)
individual firms will earn negative economic profits in the short run, which will cause some firms to exit the market
In setting the production level, a firm’s cost curves
by themselves do not tell us what decisions the firm will make
if the market price is P1, in the short run, the perfectly competitive firm will (graph)
earn positive economic profits
if the market price is P2, in the short run, the perfectly competitive firm will earn (graphs)
zero economic profits
if the market price is P3, in the short run, the perfectly competitive firm will (graph)
earn negative economic profits but will try to remain open
if the market price is P4, in the short run, the perfectly competitive firm will (graph)
earn negative economic profits and will shut down
which of the four prices corresponds to a perfectly competitive firm earning economic profits in the short run (graph)
P1 only

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