Econ - Chapter 14 - Custom Scholars
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# Econ – Chapter 14

question
Competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
question
Three characteristics of a competitive market
1) there are many buyers and many sellers in the market
2) the goods offered by the various sellers are largely the same
3) firms can freely enter or exit the market
question
Revenue of a competitive firm
TR = P x Q
question
Average revenue (AR)
total revenue divided by the quantity of the product sold
question
Marginal revenue (MR)
the change in total revenue from selling one more unit of a product
question
For competitive firms, marginal revenue equals price of the good. True or false?
True
question
If MR > MC, then __________ product production to maximize profit.
increase
question
If MR < MC, then ____________ product production to maximize profit.
decrease
question
If MR = MC, the firm is ____________ profit.
maximizing
question
MC is _________ sloping
upward
question
ATC is ____________.
u-shaped
question
Where does Mc cross ATC>
at the ATC curve's minimum
question
Price line (P) is horizontal because the firm is a
price taker
question
For a competitive firm, the firm's price equals both its _______________ and ____________.
average revenue (AR) and marginal revenue (MR)
question
The key rules to rational decision for profit maximization.
1) if marginal revenue is greater than marginal cost, the firm should increase its output
2) if marginal cost is greater than marginal revenue, the firm should decrease its output
3) at the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal
question
Shutdown vs exit
-Shutdown: a short-run decision not to produce anything during a specific period of time because of market conditions
-Exit: A long-run decision to leave the market
question
A Firm's Short-run Decision to Shut Down
- if TR < VC
- if (TR/Q) < (VC/Q)
- if P < AVC
question
Sunk cost
- a cost that has already been committed and cannot be recovered
- because nothing can be done about sunk costs, they can be ignored when making decisions about various aspects of life, including business strategy
question
Firm's long-run decision to exit or enter
- Exit if TR < VC
- Exit if (TR/Q) < (TC/Q)
- Exit if P < ATC
question
The exit price coincides with the...
minimum point on the average-total-cost curve
question
The shutdown price coincides with the...
minimum point on the average-variable-cost curve
question
When will the firm enter a market?
- if it is profitable, which occurs if the price of the good exceeds the average total cost of production
- P > ATC
question
More ways to analyze profit
Profit = TR - TC
Profit = (TR/Q - (TC/Q) x Q
Profit = (P - ATC) x Q
question
If firms already in the market are profitable, then new firms will have an ___________ to enter the market. This entry will _________ the number of firms, ________ the quantity of the good supplied, and drive _________ prices and profits. At the end of this process of entry and exit, firms that remain in the market must be making zero economic profit.
incentive; expand; increase; down
question
Why do competitive firms stay in business if they make zero profit?
In the zero-profit equilibrium, economic profit is zero, but accounting profit is positive.
question
Two reasons why the long-run market supply curve might slope upward:
1) Some resources used in production may be available only in limited quantities
2) firms may have different costs
1 of 26
question
Competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
question
Three characteristics of a competitive market
1) there are many buyers and many sellers in the market
2) the goods offered by the various sellers are largely the same
3) firms can freely enter or exit the market
question
Revenue of a competitive firm
TR = P x Q
question
Average revenue (AR)
total revenue divided by the quantity of the product sold
question
Marginal revenue (MR)
the change in total revenue from selling one more unit of a product
question
For competitive firms, marginal revenue equals price of the good. True or false?
True
question
If MR > MC, then __________ product production to maximize profit.
increase
question
If MR < MC, then ____________ product production to maximize profit.
decrease
question
If MR = MC, the firm is ____________ profit.
maximizing
question
MC is _________ sloping
upward
question
ATC is ____________.
u-shaped
question
Where does Mc cross ATC>
at the ATC curve's minimum
question
Price line (P) is horizontal because the firm is a
price taker
question
For a competitive firm, the firm's price equals both its _______________ and ____________.
average revenue (AR) and marginal revenue (MR)
question
The key rules to rational decision for profit maximization.
1) if marginal revenue is greater than marginal cost, the firm should increase its output
2) if marginal cost is greater than marginal revenue, the firm should decrease its output
3) at the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal
question
Shutdown vs exit
-Shutdown: a short-run decision not to produce anything during a specific period of time because of market conditions
-Exit: A long-run decision to leave the market
question
A Firm's Short-run Decision to Shut Down
- if TR < VC
- if (TR/Q) < (VC/Q)
- if P < AVC
question
Sunk cost
- a cost that has already been committed and cannot be recovered
- because nothing can be done about sunk costs, they can be ignored when making decisions about various aspects of life, including business strategy
question
Firm's long-run decision to exit or enter
- Exit if TR < VC
- Exit if (TR/Q) < (TC/Q)
- Exit if P < ATC
question
The exit price coincides with the...
minimum point on the average-total-cost curve
question
The shutdown price coincides with the...
minimum point on the average-variable-cost curve
question
When will the firm enter a market?
- if it is profitable, which occurs if the price of the good exceeds the average total cost of production
- P > ATC
question
More ways to analyze profit
Profit = TR - TC
Profit = (TR/Q - (TC/Q) x Q
Profit = (P - ATC) x Q
question
If firms already in the market are profitable, then new firms will have an ___________ to enter the market. This entry will _________ the number of firms, ________ the quantity of the good supplied, and drive _________ prices and profits. At the end of this process of entry and exit, firms that remain in the market must be making zero economic profit.
incentive; expand; increase; down
question
Why do competitive firms stay in business if they make zero profit?
In the zero-profit equilibrium, economic profit is zero, but accounting profit is positive.
question
Two reasons why the long-run market supply curve might slope upward:
1) Some resources used in production may be available only in limited quantities
2) firms may have different costs

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